Baroness Royall of Blaisdon: No, my Lords, we are certainly not, and neither is any other member state, implementing the clauses of the constitutional treaty piecemeal. Some things are happening, such as closer co-operation with national parliaments, with which I am sure that the noble Lord agrees, but thanks to the efforts of people such as the noble Lord, Lord Grenfell. They are nothing to do with the constitutional treaty.

Baroness Amos: My Lords, the noble Baroness is absolutely right. The rules of origin need to be revised and liberalised to ensure that they deliver the European Union's current trade and development policy objectives. However, they also need to take account of global manufacturing and supply chains that now exist for many products. The noble Baroness is right in respect of Lesotho that situation is mirrored in many countries where the value-added that countries can bring to products, and which is important in terms of their longer-term trade needs, is penalised through this process.

Baroness Farrington of Ribbleton: My Lords, I shall take the point about computer modellers first. They are an aid to research work, not the core issue. Figures for the number of virologists from the scientific, veterinary and medical disciplines are not available, although the overwhelming majority are scientific and veterinary. I know that the noble Baroness is aware of the international renown of the work done at Pirbright, a facility we are developing and which is a centre of excellence. I am sure that it will look at her suggestion.

Lord Hunt of Kings Heath: My Lords, financial abuse is defined in the No Secrets document, which is statutory guidance to local authorities. I accept that the definition used by ACE is wider. We are working to identify the scale of the problem, and we are using the ACE definition in that, but I will certainly ensure that we consider the question of definition.
	We will consider the question of wider guidance in the context of the research now being undertaken into the scale of the problem. It is worth making the point, however, that we already have statutory guidancethat local authorities should be following. I agree that there are number of matters in the ACE report that need to be considered by other bodies such as financial institutions, and I hope they will do so.

Baroness Williams of Crosby: rose to call attention to the responsibilities of the Attorney-General, other members of the Government and the Serious Fraud Office for compliance with the United Kingdom's treaty obligations and the rule of law regarding the alleged bribery and corruption of foreign officials; and to move for Papers.
	My Lords, I begin this important debate with a short, true story. I apologise in advance to the House for being likely to consult my notes more frequently than I usually do, because it is also a very complicated story.
	On 14 December last year, the noble and learned Lord the Attorney-General came to this House just before it rose for the weekend to report the decision of the Serious Fraud Office to discontinue its investigations into BAE Systems Plc, concerning payments made in relation to the Al Yamamah contract with Saudi Arabia. He said that,
	"it has been necessary to balance the need to maintain the rule of law against the wider public interest".—[Official Report, 14/12/06; col. 1715.]
	He told the House that the Prime Minister, the Foreign Secretary and the Defence Secretary had been consulted. Continuation of the investigation, in their view, would cause serious damage to UK-Saudi security, intelligence and diplomatic co-operation. I quote him again:
	"The heads of our security and intelligence agencies andHer Majesty's ambassador to Saudi Arabia share that assessment".
	The Serious Fraud Office believed also that there was no guarantee that its investigation, which would need to continue for a further 18 months, would lead to prosecution. The Solicitor-General said that it had decided that,
	"the potential damage to the public interest which such a further period of investigation would cause is such that it should discontinue that investigation now".—[Official Report, Commons,14/12/06; col. 1119-20.]
	The Attorney-General agreed, and indeed thought that the obstacles to a successful prosecution were such that,
	"it is likely that it would not in the end go ahead".—[Official Report, 14/12/06; col. 1712.]
	In today's Guardian, it is alleged that the Attorney-General was satisfied that the evidence was sufficient for a prosecution but was overridden, unconstitutionally, by the Prime Minister. In a long interview yesterday with the Financial Times, the Attorney-General reiterated that the decision was made by the Serious Fraud Office independently of his views.
	In December 1998, the United Kingdom Government had ratified the OECD Convention on Bribery, a key weapon in the global battle against corruption. The OECD recognised that corruption was not a one-way street, that those who offered bribes were as guilty of corruption as those who received them. Thirty-six countries, including all 30 members of the OECD, had agreed to the treaty. Under Article 5, signatories vowed that the investigation and prosecution of a foreign official would not be influenced by,
	"considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved".
	It was unprecedented—or not unprecedented, but unusual—for the chairman of the OECD's working group on bribery to write to a member Government but, shortly before Christmas, Professor Mark Pieth, the Swiss chairman of the group, did indeed write to ask for an explanation of the Attorney-General's decision. The OECD had already criticised the United Kingdom for lax implementation of the bribery convention. Its March 2005 report pointed out that not even one individual or company had been indicted or tried for bribery of a foreign official by the United Kingdom since the convention had been ratified. That contrasts with a number of such prosecutions brought to bear in France, one of the major competitors of the United Kingdom for defence contracts. Furthermore, resources made available by the Government for investigation of potential bribery cases were based on an explicit expectation that "few" foreign bribery cases would be investigated. The OECD examiners also urged the UK authorities to amend the code for Crown prosecutors to bring it in line with Article 5 of the convention. Nearly two years later that has still not been done.
	Professor Pieth, whose recent letter has not been made public, was concerned that the Attorney-General's decision in the BAE case was in breach of Article 5 and could undermine the effectivenessof the 1997 convention. He went further, raising doubts about the dual role of the Attorney-General. He said:
	"The only explanation for dropping the case has been that there's been very strong political pressure".
	In his interview yesterday with the Financial Times, the Attorney-General stoutly denied that there was any breach of the OECD convention. In that he was clearly at odds with the chairman of the working group on bribery of the OECD.
	There were some strange anomalies in the Attorney-General's original Statement to the House. He said that the security and intelligence services shared the assessment of the three Ministers consulted, one of whom was the Prime Minister. But in his letter to the OECD, he referred only to the "benefit of their advice", without disclosing exactly what that advice was. The Daily Telegraph reported on 19 January that John Scarlett, head of MI6, had refused to endorse the Government's national security reasons for dropping the investigation. Although this was denied, no reference was made in the Attorney-General's letter to the OECD to any such endorsement. Crucially, as far as we know, neither M15 nor M16 was ever asked for a risk assessment of the threat to national security mentioned by the Attorney-General and the Prime Minister.
	Did the Serious Fraud Office (SFO) decide to drop the investigation? On 18 January, in reply to a question from my noble friend Lord Garden, the Attorney-General declared:
	"I repeat that it was the director's decision, not mine".—[Official Report, 18/1/07; col. 778.]
	Maybe that was formally true, but the SFO had been vigorously pursuing the investigation for months. It had learned that BAE had two agencies to handle payments to foreign officials: Poseidon for Saudi Arabian officials and Red Diamond, based in Geneva, for other countries' officials. Arrangements were made by a reputable British bank for the payments to go to personal Swiss or American bank accounts.
	In September 2006, the SFO was granted access to the Swiss accounts for intelligence purposes only. The decision led to a hail of protests to No. 10 and the Attorney-General, from Saudi interests and from BAE. The payments, it was alleged, had been going on for many years, ever since the original Al Yamamah contract was signed in 1988, and the amounts were far from trivial. Indeed, that contract had led to an investigation by the National Audit Office, which reported in 1992. The Public Accounts Committee agreed not to publish its findings.
	On 16 January, the working group on bribery met in Geneva. Feeling ran high among the members about the calling off of the SFO investigation, especially among the American and French representatives, the main competitors for defence contracts with the United Kingdom. The other signatories of the convention expressed their serious concern about the Attorney-General's decision, which was unusual for a body that works by consensus—and rightly so. For the argument from national security threatens to destroy the OECD's bribery convention by giving every member state a ready excuse for waiving its requirements.
	If the UK was genuinely concerned about national security, the responsible way to address such concerns would have been for the company to go to the Serious Fraud Office and disclose precisely what had taken place, to pay the criminal penalties and help to identify the perceived security threats. The public interest in the rule of law would have been sustained and the public interest in national security protected. None of this happened.
	What are the consequences of all this? First, the weakening of the battle against corruption, not just in the OECD area but in all those developing countries that we have been addressing in lofty tones about good governance. The double standards are glaring. Secondly, in an industry widely thought to pay huge bribes, where some companies have been working hard to improve their reputation, the Attorney-General's announcement has done great damage. Thirdly, there are repercussions on the standards of our own Civil Service. It is hard to believe that senior officials at the Ministry of Defence and indeed at the Foreign and Commonwealth Office were not aware of what was going on. I give them the benefit of the doubt, but with considerable doubt. As for the role of the noble and learned Lord the Attorney-General, I leave that to my noble and learned friends to pursue. I beg to move for Papers.

Lord Brennan: My Lords, the noble Baroness, Lady Williams, has raised a very broad and important question for our consideration: in what way does and should our country deal with international corruption? That is so important a topic that it would be a great disappointment if this turned into a debate based on personal criticism of the noble and learned Lord the Attorney-General and, through him, the Government.
	Clause 5 of the OECD convention makes it clear that general national interest shall not be the basis on which to excuse corruption. As I understand it, that was not the basis on which the decision about the Saudi Arabian investigation was taken; in fact, it was exactly the opposite, that of national security. I cannot imagine that a convention entered into using the phrase "national interest" must implicitly include national security in that phrase. I cannot imagine any ordinary citizen in this country thinking that it was irrelevant, or not vital, for a Government to consider national security in a situation like this.
	If, as I understand it from recent material in the Financial Times, the director of the Serious Fraud Office not only took a decision based on his own judgment, having taken advice, but also consulted our ambassador in Saudi Arabia no fewer than three times, and if, as we know, the noble and learned Lord the Attorney-General in his Statement in the House said that this was a decision based on national security, on what basis is it to be questioned? If the noble and learned Lord the Attorney-General exercises his office on the basis of principles such as honesty and objectivity, and so does the director of the Serious Fraud Office, that satisfies me without further evidence or material.
	I cannot imagine any Attorney-General or director of the Serious Fraud Office treating those obligations to their country in a fashion that would enable them to serve some short-term political interest. The Attorney-General's office is garbed with a dignity which would soon be in tatters if those principles of honesty and objectivity were not followed. I refuse to take part in debates about the office that do not take that into account. But if such debates take place, we should have regard to whether those principles have been applied and, without convincing evidence to the contrary, accept that they have. The office is more important than the holder and the constitutional position is more important than any passing Government or their own interest.
	On the wider question of corruption, this Motion, directed as it is at one aspect, begs a question. As corruption occurs before action by the Attorney-General or the Serious Fraud Office, what is our country doing about the prevention of corruption from the beginning? Last summer, the United Kingdom defence industry set up a working group to deal with the grave problem of corruption in its industry. A similar group was set up across Europe. As I understand it, a Member of your Lordships' House, the noble Lord, Lord Robertson, with a distinguished background, is closely involved in the work of those bodies. That is a great step forward. Why? Because, according to Transparency International, that industry is the second most corrupt industry in the world. So that is progress.
	A short while ago, your Lordships' House passed the Companies Act 2006, which is more progress. Under Section 172, a director must have regard in what he does for a company to how it affects the reputation for high business standards which that company should exercise. That is a novel change. It makes it extremely difficult for any director plausibly to suggest to his own board or to the world that engaging in corruption meets that statutory obligation. These are new steps. The Saudi Arabian question is over 20 years in the going. It is much more a concern, is it not, to make sure that we solve this problem for the future rather that pore over what went wrong in the past?
	I have two other points about action. In the light of what has happened, surely it is necessary for the Attorney-General to establish a protocol with the Serious Fraud Office on the investigation of serious cases of corruption. There should be a system that he and the SFO can look to for guidance; a system that, for example, requires a national security assessment to be made when a prosecution or investigation is initially being considered, with further assessments as time goes by. There should be a protocol—faced with the actions of the industry, and faced with the Companies Act—that puts a heavy focus on the duty of British industry not to engage in corruption.
	All of this debate raises the role of the Attorney-General in our constitution, our Parliament and our country. I cannot accept that, in 2007, he is simply a servant of government. Nor can I accept that his advice on matters of gravity should be private and not public. Times have changed. As for the Attorney-General's role in Parliament, again, he has a responsibility to advise and guide us. But, above all, he has a duty to the nation. He represents the national officer of justice.

Lord Lyell of Markyate: My Lords, I am glad to follow the noble Lord, Lord Brennan, in those sentiments, and I congratulate the noble Baroness, Lady Williams of Crosby, on raising an extremely important issue in Parliament. I emphasise the words "in Parliament" because this is where it ought to be raised. The key point that I am making in this debate concerns the Attorney's position as the law officer of the Crown who is accountable to Parliament.
	The Attorney came to us on 14 December and raised the position that the noble Baroness has correctly set out. Not surprisingly, it has come under a good deal of criticism. It has been questioned by a number of members of her party, and there have been interesting discussions. I listened to the noble Lord, Lord Garden, on the "Today" programme and on previous occasions. At some stage, a judicial review case is to be brought against the Attorney by the Campaign Against Arms Trade. The OECD has expressed concerns, as the noble Baroness indicated. African leaders have been raising the matter. It is a matter of huge and important public interest.
	However, some suggest that the role of the Attorney should be changed in some way on account of this—and that is what I wish to resist very strongly indeed. A great strength of our constitution is that it is pyramidal in shape and that in the end, everything can be held to account in Parliament. That obviously does not apply to judgments that the Law Lords reach in their wisdom—until Parliament changes the law, that stands; but the question of the prosecuting authorities and the way that they are superintended by the Attorney-General, which is the issue raised immediately by this debate, most certainly should involve parliamentary accountability.
	When he comes to consider any prosecution, the Attorney-General has to consider two questions, as do the prosecuting authorities in accordance with the code for Crown prosecutors,. First, he has to consider whether there is sufficient evidence to give rise to a realistic prospect of conviction. Some commentators talk about the balance of probabilities on the criminal standard of proof before a British jury. The second question is whether it is in the public interest to prosecute. It is perfectly proper that that question should be considered and there is no doubt that questions of national security are of public interest—of very important public interest. In this case, doubt is thrown over whether this really is a matter of national security or of commercial convenience. It is entirely proper for that to be tested here and in public—indeed, as it is being tested.
	The Attorney-General was right; and I have some sympathy for him, because he has been candid enough to tell us that his position in these circumstances was by no means comfortable—and that has been the position of Attorneys-General down the decades and centuries. It is one of the strengths of our constitution that the Attorney's position should be uncomfortable from time to time and that he should have to answer. The Attorney-General is not the Prime Minister's Attorney-General. He is Her Majesty's Attorney-General, appointed under the Great Seal, just like a judge. He acts as guardian of the public interest, which is not the party-political interests of his party, but the interests of the public in the widest sense.
	A balance had to be struck here. The matter needs to be and it is being questioned; but issues arise, such as the strength of the evidence. I must confess that I was struck, because the Attorney stated that he had spent two, three or even more days looking carefully into the evidential strength here. As I understand it, this case was not decided by the director of the SFO on evidential grounds—we have been told that it was decided quite clearly on public interest grounds; none the less, the fact that the evidence to the Attorney apparently seemed to be weak in regard to anything that happened after 2002, when the 2001 Act came into force, was a factor to be borne in mind. Then we have been told, as the noble Lord, Lord Brennan, reminded us, that there was consultation with Ministers, right up to the Prime Minister, and close consultation between the director of the Serious Fraud Office and our ambassador in Saudi Arabia.
	Those consultations were perfectly proper, but I do comment on their manner. There has been a change. The Government and the Attorney should take note that there are dangers in "sofa government", as it has been described. In my years as a law officer and when I was PPS to Sir Michael Havers previously, and when my noble friend Lord Mayhew of Twysden was Attorney-General, these consultations were carried out in an extremely strict and formal way. I have some worry that that has been relaxed. That may be said to be more modern, but great care and formality in these matters are extremely important. I would be interested to hear what the noble and learned Lord the Attorney-General has to say about that aspect.
	My fundamental point is, as I say, that these matters can and should be answered in Parliament. The notion that you should pass the role of the Attorney-General off to some public official, be it the individual directors—the director of the Serious Fraud Office or the Director of Public Prosecutions—or some other public official, does not fit with our parliamentary system. It would reduce our accountability and the strength of our democracy, and we should resist that.

The Earl of Sandwich: My Lords, the noble Baroness unfailingly brings to our attention urgent subjects that might otherwise be neglected. The Lib Dems are quite right to be infuriated by this case. I have been trying to think of the equivalent of "disgusted, Tunbridge Wells" for the Liberals, but I could only come up with "outraged, Orpington". More seriously, this is a matter of widespread public interest, as has been said, and the Official Opposition's silence has, to some extent, inhibited the parliamentary debate so far, at least in this House until today. It may well be that they support the Government's line, but we shall hear.
	There is a lot of moral high ground at stake and the SFO affair is a hurdle that the Government would like to jump quickly as they attempt to ride high in international diplomacy, as they do, before a new Prime Minister comes to power. As many NGOs have recently said, the decision to drop the SFO case has surely undermined DfID's activities in the developing world. The World Development Movement said that,
	"future efforts by the UK to prescribe governance standards for developing countries in receipt of aid and debt relief are likely to be viewed as nothing less than double standards".
	Given the impact of corruption on democracy, sustainable development, human rights and poverty, will the noble and learned Lord the Attorney-General at least admit that the UK has lost face at the OECD and that DfID will have a lot of work to do to catch up? I welcome his statement that the UK's,
	"not ... entirely comfortable decision ... does not mean that we are backing off in any way from our commitment to tackling international corruption".—[Official Report, 18/1/07; col. 779.]
	But does he agree that the UK's decision violates Article 5 of the OECD convention, which specifically states that the investigation and prosecution of foreign bribery,
	"shall not be influenced by considerations of national economic interest"?
	With what legal justification have the Government decided not to regard this article as integral to the convention? As Transparency International says, not only does the decision undermine progress made through the OECD anti-bribery convention, but it threatens the implementation of the more recent UN Convention against Corruption, and damages the reputation of the UK as an international anti-corruption champion.
	Let us not forget that DfID is held in very high esteem by the international aid community. Only last year, on the back of our dual chairmanship of the G8 and the EU in 2005, the UK was praised as,
	"a powerful model for development co-operation",
	by the OECD's DAC peer review. Governance and transparency were the major themes of DfID's White Paper, which we discussed here on 11 January. The Government need no lectures on the close links that exist between the exploitation of minerals as a financial source for the arms trade and conflict financing, especially in the eastern DRC. It is essential that the UK maintains its position on this and on the important Kimberley process. Of course, other SFO investigations have been allowed to continue, such as the BAE contract for an air traffic control system in Tanzania, which has also rightly been under the spotlight because of the huge commissions paid.
	I do not underestimate the importance of our national strategic interests and the role of intelligence, because I have always believed that the UK has played down the role of significant Arab neighbours both in anti-terrorism and during the Iraq war. Perhaps the Minister could confirm that the US, as our closest ally in the Middle East, is not impressed by the public interest argument that vital intelligence would not be shared if the investigation went ahead.
	I also know the value of Saudi Arabia to our economic interests and the necessity of preserving our very close relationship. Equally, I am aware of the changes that are occurring in Saudi Arabia, which are often ignored by those who would foist democracy on the Arab world. Many Saudi Arabians today live by international norms and would recognise that huge commissions, such as were paid during the Al Yamamah contracts, have no place in either Islam or Christian philosophy. There is a lot more awareness of these issues in Saudi Arabia than our media, with their irrepressible desire for caricatures and stereotypes, would have us think. However, I support the Liberal Democrats' call for the release to an appropriate Commons committee of the National Audit Office report on the deal, which would surely help to restore credibility.
	The SFO is bound to pick up the Al Yamamah case at some stage, and the sooner there is transparency, the better. Everyone knows that there were sweeteners in the defence deals, and both BAE and the Saudi Government must come to terms with the new rules in due course.
	I recognise the present political reality of the decision but it will not stick. Diplomats and officials must surely work harder with the companies involved in Al Yamamah to ensure that the contract is not seen as so outrageous that it is deemed beyond the pale and cannot bear investigation.
	As the noble Lord, Lord Brennan, and the noble and learned Lord, Lord Lyell, have said, this is also about the role of the Attorney-General. As I think Lord Denning would have said, no one, be he ne'er so high, has the right to stop justice in its tracks. A Government who have sought to achieve the separation of powers and for whom the independence of the judiciary was a central plank of government policy expressed in the Constitutional Reform Act, should agree with him.

Lord Soley: My Lords, this is a very important debate and I welcome the opportunity given to us by the noble Baroness, Lady Williams, to bring it before the House. This is not the only occasion on which the matter has been debated. I am very grateful that the noble and learned Lord, Lord Lyell, started his comments almost with the words, "I feel your pain". I remember well the Al Yamamah deal and the problems that it caused for the then Conservative Government. These are not easy matters. They bring into issue the interface between the rule of law and the problem of politics in an unlawful world. That is a part of the agenda which I do not think the noble Baroness, Lady Williams, addressed. I should like her to address it at some stage, because it is a very important part of this debate.
	I agree very much with the comments of my noble friend Lord Brennan on the difference between national interest and national security. If I may simply identify myself with that difference, I need spend no further time on it. It is an important point and very relevant.
	Other important matters have been raised by this issue, including the role of the Attorney-General. I have often wondered whether that role should be so heavily embedded in the Government. It is an interesting question. I do not feel expert enough to comment on it, although I note that, following all the constitutional changes that we have made, some people are now saying that we should take yet another step and make an even bigger change. Whether we should or not, I do not know, but I believe that it is a matter for significant debate.
	The one area that I do not think is in any way justified is criticism of the integrity of the noble and learned Lord the Attorney-General. His integrity on this and other issues is beyond question, but he has been presented with a profoundly difficult problem concerning the role of the political system and the role of the judicial system. Fortunately, in Britain we are all strongly signed up to the concept of the rule of law, and we operate in a country which places the rule of law on a pedestal. That is very good and it is one thing that we are admired for around the world. The problem, as I indicated earlier, is that we operate in an unlawful world. As with so many issues, we are trying to bring law to the wider world. In doing so, we must lecture people elsewhere on their behaviour and confront serious contradictions from time to time. This is not a new issue which has just emerged with the role of the United Nations and the rule of law.
	It is not now well remembered but, in 1940, Sir Winston Churchill was challenged on the lawfulness of the occupation of Iceland; there was no legal basis for it, but everybody knew that it had to happen. No permission was given by the Icelandic Parliament; it was just done for reasons of national security of which everybody was aware. Issues like this have cropped up from time to time. The noble Baroness, Lady Williams, might like to remember that, on the issue of whether Britain should intervene and invoke our treaty with Cyprus when Turkey invaded, we did not do so for two reasons: first, our defence ability was not good enough at the time and, secondly, national interest and security.
	The way we are now trying to operate in the world is incredibly important. As we have this debate, the President of China, Hu Jintao, is going around Africa saying that China is not attaching any of the strings to aid or grants that are being attached by the western world. That should not lead any of us to conclude that we therefore give up and say that we cannot impose the rule of law on issues like bribery and corruption because the Chinese are giving money to Governments whom we know will use it in a corrupt manner. I am not led to that conclusion, but it makes me aware of the struggle between the emergence of the rule of law and the political structures in which we must operate. Nothing could be more relevant to that than the country in the focus on this issue and the Al Yamamah deal.
	Saudi Arabia has a crucial position in the Middle East as a whole. It is, and has been for many years, a pretty corrupt and authoritarian regime. There has been considerable pressure on the Saudi Arabian Government to reform, particularly since September 11 2001 and the invasion of Iraq. The noble Earl, Lord Sandwich, might regret the way we lecture countries, but the lecture is appropriate. Our problem with Saudi Arabia is not dissimilar to that with any other authoritarian regime trying to move into a more democratic and responsive role: if you push too hard, it goes the other way. That is the problem we face in the conflict between getting higher standards of the rule of law and democracy in other countries, while dealing with the conflict over national security. It would matter immensely to this country and, above all, to the stability of the whole region if Saudi Arabia went seriously pear-shaped.
	I am not a lawyer, so I have an advantage in facing the political/legal interface. Many lawyers, perhaps inevitably, get trapped—because of their training, important though that is—into trying to analyse an issue detail by detail as though the law applies everywhere. I sometimes feel that part of a legal course ought to be a compulsory historical tour of this place, not least Westminster Hall where you can look at the plaques in the floor to see that some people were on trial for seven years whose charges were dismissed, while others were on trial for three days and then executed. At that time, we were developing the rule of law in the context of an emerging democracy.
	These problems are not easy. Whether the Attorney-General's role remains as it is, is independent or whether we publish certain evidence or advice he offers from time to time on important and relevant issues deserving pursuit, whatever we do, we will always be confronted with the conflict between exporting the rule of law and democracy and cutting our cloth to face the challenges of day—be they the current situation in the Middle East or the invasion of Iceland. They will be there, and we must face that.

Lord Lester of Herne Hill: My Lords, it is excellent that the noble and learned Lord the Attorney-General is here to answer the debate. Nothing that I say is an attack on his personal integrity; he has been put in an impossible position.
	When the noble and learned Lord became Attorney-General I tried to convince him that he should make his office less political and more constitutionally independent, as happens elsewhere in the Commonwealth, Israel and Ireland. I did so because I was convinced that the Attorney-General, like the Lord Chancellor before the Constitutional Reform Act, wears too many hats.
	I did not persuade him. On the contrary, his office has become more political, no doubt because he believes that the Attorney-General should be at the heart of government and be politically influential. I respect that view, shared, as we have heard today, by previous holders of his ancient office, the noble and learned Lords, Lord Lyell and Lord Mayhew.
	I believe, however, that the events of the past five years illustrate the need to reform the present arrangements so as to restore public trust in government and to strengthen the rule of law. Good governance under the rule of law depends not only on the courts but on the proper working of the constitutional rules and conventions, and the political will to make them work.
	The constitutional rules and conventions were stretched to breaking point over the invasion of Iraq, and now they have been broken in halting the criminal investigation into the BAE Systems affair. It was wrong for the Cabinet to be kept in the dark about the noble and learned Lord's written opinion when it considered whether it would be lawfulto invade Iraq without a UN Security Council resolution. It was wrong for it to have to rely only on what he told them on the eve of the invasion. It was also wrong for Parliament to be given only a facile Downing Street précis of his conclusions without the benefit of his sophisticated advice and the reason for his change of opinion. When we debated the legality of the invasion, we were kept in the dark. It was only because his advice was leaked to the press that we learnt part of the truth.
	I agree with almost all public international lawyers that the invasion was unlawful. To her great credit, the deputy legal adviser to the Foreign Office, Elizabeth Wilmshurst, promptly resigned because she did not agree that the use of force was lawful. She considered that the noble and learned Lord had changed his view on the matter. Then in December we learnt that the law officers were kept in the dark about the attack on Egypt in 1956. Eden and his Cabinet bypassed them, presumably because they knew what they were planning was plainly illegal. That is another example of why reform is needed.
	The Attorney-General also has important responsibilities for the enforcement of the criminal law in the courts. There are a number of offences for which a prosecution cannot be brought without the fiat of the Attorney-General. That was meant to provide a safeguard against the risk of prosecutions being an abuse of proceedings or contrary to the public interest. Surely a member of the Government and a politician should not be able to decide whether to prosecute for a highly political offence involving alleged corruption. The Attorney-General is a member of the Government, their most senior legal adviser and independent law guardian of the public interest. How can he claim credibly to act quasi-judicially when he plays a highly political role at the heart of government? That is the dilemma.
	The manner in which the criminal investigation of alleged corruption in relation to BAE Systems was halted shows how fragile and inadequate are our present constitutional arrangements for protecting the rule of law and good governance. It has eroded public confidence in the Government's integrity. In halting the investigation, the Government have acted in clear breach of their obligations under the OECD convention against corruption, as my noble friend Lady Williams of Crosby pointed out. It has stained the international reputation of this country and set a bad example here and abroad. It has weakened the battle against corruption in international trade.
	The weaving and ducking, buck-passing and hand-wringing involving the Prime Minister, the Attorney-General, the SFO and the intelligence and security services as to why, how and at whose behest the pending criminal investigation was halted are a shambles, harming the Government's reputation as well as the reputations of BAE Systems and the Saudis and adding to widespread public distrust and cynicism about standards in public life. If I may say so, the noble and learned Lord's insistence that he has no choice but to decide whether anyone should be prosecuted in the cash for honours affair is also unwise and unsustainable.
	I was delighted to read in last Sunday's Observer that the noble and learned Lord, Lord Falconer, has suggested that the Attorney-General's role is to be changed as part of further constitutional reform and that Gordon Brown is considering radical reform of the role to restore public trust. As elsewhere in the Commonwealth, parliamentary accountability for the Attorney and the DPP could easily be secured by having an elected Cabinet Minister of justice. The sooner that that happens, the better it will be for the good governance of this country under the supreme law of the British constitution—or what should be our supreme constitutional law.

Lord Skidelsky: My Lords, as always, it is a pleasure to follow the noble Lord, Lord Lester, especially as I agree wholeheartedly with what he said.
	I speak in this debate only to draw attention to a particular phrase that passed the noble and learned Lord the Attorney-General's lips in the debate on14 December, when he cited the following statement of the Serious Fraud Office:
	"It has been necessary to balance the need to maintain the rule of law against the wider public interest".
	Does the Attorney-General accept that formulation? He has certainly not repudiated it. Indeed, he has endorsed the idea of a balance. In the same debate, he said:
	"The short statement from the SFO makes that clear by saying that it has been necessary to balance the need to maintain the rule of law against the wider public interest". —[Official Report, 14/12/06; col. 1712, 1715.]
	I find the proposition about the need to balance the rule of law against the wider public interest unacceptable. In my simple understanding, you either have a rule of law or you do not. It cannot be left to the discretion of government or a statutory agency to decide the circumstances under which a particular law applies. That gives the Government licence to break the law whenever they want. I am not convinced by the argument of the noble and learned Lord, Lord Mayhew, that government's accountability to Parliament gives sufficient protection for the rule of law, for the reasons stated by the noble Lord, Lord Lester: Parliament will never be given enough information to decide the matter. If a Government feel that they need greater powers to protect the national interest or to defend national security, their proper course is to apply to Parliament for those powers, which could include the specific right to take the public interest into account in applying the law in that particular case.
	The OECD convention against corruption, as accepted by the United Kingdom, did not allow the UK to vary the law to take into account either,
	"the national economic interest or the potential effect upon relations with another state".
	I therefore repeat my question: does the Attorney-General accept the doctrine that the rule of law needs to be balanced against the wider national security? If not, I ask him to repudiate it. If he does, I suggest that there is an ominous and dangerous future for the rule of law in this country.

Baroness Kennedy of The Shaws: My Lords, Governments are always susceptible to allegations of double standards—it goes with the business—and I am only too aware of how difficult it is for them to find themselves between a rock and a hard place in deciding on prosecutions when it may mean offending people whose friendship may matter. However, the Serious Fraud Office's announcement that it was calling off its investigation into alleged corruption involving BAE Systems and Saudi Arabia has caused us serious concern.
	I declare an interest as a member of the advisory council to the World Bank Institute. For a number of years, we have been actively seeking to deal with corruption around the world and the establishment of the rule of law and human rights standards, and it has been a source of great despondency to many that this investigation has been abandoned. It would have been one thing if it had been abandoned because it was unlikely to succeed, but abandoning it in these circumstances was a source of alarm. I recently spoke to Eva Joly, the French judge who dealt with the Elf corruption case with great courage. She, too, is still working on the eradication of corruption, and feels that this decision has undermined so much of the good work that has been done in recent years.
	The explanations given have already been spelt out today. It was said that there was a balance to be struck between the rule of law and the wider public interest. I support what the noble Lord, Lord Skidelsky, has just said. The rule of law really is at the heart of everything. Adherence to the rule of law is fundamental if we are to talk to the world about what matters and how to prevent conflict. It was maintained that the decision was nothing to do with commercial concerns, and that it was based on diplomacy and security. Well, not much evidence has been provided to support the suggestion that it was about security. It seems that we were anxious not to offend the Saudi princes, given the mess of Iraq. Let us be clear: the problem is not really BAE Systems. Arms companies sell arms; that is what they do. They sell them around the world, and the job of politicians is to ensure that economic activity is consistent with law and morality. Jobs are important, as are good relations with other countries, but preserving them should not supersede the law.
	There is a long history of Governments doing business with odious Governments. Back in 1977, bribes were paid to the Shah of Iran to secure arms deals. We should have learnt that those business arrangements rarely pay dividends in security and intelligence. I accept what previous Attorneys-General have said; sometimes one can imagine the extreme circumstances in which security was of such an order that one might decide that one can not proceed with a prosecution. However, those circumstances would be rare, and there is no suggestion that that is the situation here. Such a decision gives rise to the question: who would decide that balance? The answer has been an Attorney-General. It would have to be an Attorney-General who had the public's confidence that he was completely independent of the political processes.
	When my party came into government in 1997, we pledged to be different, and I feel very proud that that was our pledge. Robin Cook's mission statement that year on 12 May, my birthday, is worth remembering. I remember it very well, because he spoke of our foreign policy having an ethical dimension. It was laughed at in some quarters, but I thought it was a proud consideration. Now it seems as though we can be pushed up against the wall by dictators and by other Governments, and we are prepared to do what it takes to stay on good terms with them. This whole episode of stopping this investigation really was a sad moment for us.
	The office of the Attorney-General has existed for 500 years, as others have said. The Attorney-General is a member of the legislature and the Executive, and he attends the Cabinet at the request of the Prime Minister. In recent times, however, this Attorney-General has been inclined to attend every Cabinet meeting. He is also a member of various Cabinet committees. The public's perception is therefore that the traditional role of previous Attorneys-General has been evolving into something different. It is inthe rich mix of the Attorney-General's diverse responsibilities, which straddle the various limbs of government, that we are becoming increasingly concerned that the checks and balances in our constitution are getting out of kilter on many fronts, and this is one of them.
	As a member of the legislature and the Executive, as an increasingly active participant in the Government's tri-lateral approach to criminal justice, the Attorney-General is seen more obviously as a politician. In that capacity, he acts as any other Minister, and he is politically accountable to the Prime Minister and to Parliament as a member of the Government. Yet as the Government's chief legal adviser, he is also called on to advise the Prime Minister and other Ministers on the legality of their actions and policy initiatives. He does so, we claim, independently, but his growing association in the public mind with daily political imperatives leads to widespread public scepticism. We have seen that in the way in which the advice was provided on the Iraq war, the current issue about the Attorney-General's role in relation to loans for honours, and his role in relation to the investigation into BAE Systems and corruption.
	The public now have a different perception and different expectations, because they are much better informed. The nature of our media tells us more, so our world has moved on. Our constitutional arrangements must adjust to deal with that. It is clear that the recent development of the Attorney-General's ministerial role has made it more difficult for the public to distinguish between his political and legal functions. In this context, the Government have already recognised the dangers inherent in multi-functional ministerial portfolios. That is why the role of the Lord Chancellor was reformed. I do not advocate that we follow the manner of the reform of the Lord Chancellor's role, as that left a lot to be desired. However, we should now look at the role of the Attorney-General and decide whether it is suitable in the 21st century for someone who is clearly a politician to decide on matters of such legal importance. The question then arises: whose lawyer is the Attorney-General? He is not the Prime Minister's counsel, although many of the public think he is; he is the public's counsel. He is supposed to be protecting the public interest, and I am afraid that that has become fudged in the minds of the general public.
	Let us look at what we can do. The Attorney-General could return to the role that his predecessors traditionally undertook as the Government's chief legal adviser, but with a powerful role in protecting the public interest. As one of our previous Attorneys-General said, he should be likened to a judge. He has a quasi-judicial role. In returning to that traditional position, he should cease to superintend prosecutors, such as the head of the SFO or the Director of Public Prosecutions, and should not promote the Government's criminal justice policy or attend Cabinet, except by exceptional invitation.
	Those things can be done very easily. Some would say that there is a difficulty with that approach in that the process has gone too far and in the public's mind this position is perceived to be too political. I argue that you could reform the role of the Attorney-General in a way that keeps it pure and away from contamination and the suspicion that the Attorney-General may be doing the bidding of political masters.
	I say that with sensitivity to the feelings of the current incumbent, but it is about the way in which our world has changed. The way in which that role is evolving makes it more political and, therefore, challengeable as to whether it is suitably independent. I, too, support the suggestion of my colleague in the law the noble Lord, Lord Lester, that this is a constitutional moment when we should look again at some of these key roles in government to see whether they can be established on a different footing.
	I urge that, after this debate, at some point leaders of our political parties should look at our constitution.

Lord Renton of Mount Harry: My Lords, these are grave matters that we are debating. I am very grateful to the noble Baroness, Lady Williams of Crosby, for giving us the opportunity for this debate. I am not a lawyer. I will not try to define the position of the Attorney-General—whether it is right or wrong, or should be extended or not. I approach this from a rather different angle. For 20 years, before I went into politics, I worked for an international firm trading commodities around the world. From 1984 to 1987, I was at the Foreign Office with responsibility for the Middle East under my noble and learned friend Lord Howe and, of course, I visited Saudi on several occasions. It is against that background that I would like to speak for a few minutes today.
	The noble Earl, Lord Sandwich, gave us a very pleasant quotation from Lord Denning. I should like to quote from last Sunday's Collect—the Fourth Sunday after Epiphany—which says,
	"by reason of the frailty of our nature we cannot always stand upright".
	That is at the heart of our business today, other than the position of the Attorney-General.
	I visited Sir Stephen Egerton in Riyadh, who was our much-praised ambassador from 1986 until 1989. He had a very pleasant obituary in the Telegraph when he died last September, which stated:
	"In 1986 he was appointed ambassador to Riyadh, where he was involved in negotiating the £20 billion Al Yamamah Project, involving the sale to Saudi Arabia of numerous aircraft together with their weapons, support and associated infrastructure—one of Britain's largest long-term arms deals".
	Subsequently, Stephen broke away from the Government's view. He did not think that we should have gone into Iraq, which he said publicly and made himself rather unpopular. I knew Stephen Egerton from when he was a schoolboy, and he was a strong and intelligent man.
	We have also to consider today, although we have not yet, the fact that—let us face it—nations pursue objectives that will benefit the nation in terms of employment, growth of technology and alliances with foreign states that may be useful or, indeed, vital in the future. That is what working in foreign affairs is about. I know that the noble Lord, Lord Brennan, in a very good speech told us not to look back too much, but to look forward. But, in all fairness, we have to ask whether we prefer to have won the Al Yamamah project even if there were some—I will use my words tactfully—off-balance activities that should not have happened or whether it would have been preferable not to have won it but to have seen it go to the French, the Americans or today perhaps the Chinese and ourselves to have remained squeaky clean. It is a fair question to ask. In a sense, it can be answered only by individuals with reference to their own consciences.
	Of course, the world is changing, as we were reminded very much by the noble Lord, Lord Brennan. Perhaps one should say, "Thank goodness for that". As has been said already, we signed the OECD anti-bribery convention in December 1997. Every country that signed that convention promised to back it up with an active, effective Act, which we have totally failed to do in this country. We have failed to legislate. Noble Lords will remember the documents that I have here with me. In March 2003, the Home Office brought forward a draft Bill. A very long report by a joint pre-legislative scrutiny committee on the draft Bill said that the definitions were wrong and that it had to be changed. The Home Office produced a reply to the legislative committee and two years later it produced a consultation document. That was in 2005: how many years therefore have passed since we signed the treaty? If my maths is right, it is eight or nine years. Other countries have signed it. France, who we criticise so much, started action in three days. Germany started action in three months. Australia and Canada have taken this matter very seriously. But we have marked time, stamping our heels, saying that the definitions are so difficult. It is that that I find totally unacceptable.
	In order for us to follow up, for example, the commitments to African countries that the Secretary of State for International Development is making and the fact that obviously the OECD is tackling difficult countries where there is now corruption—but the UK cannot now be quoted as a good example—it is necessary for us to do two things. First, publicly, we need the fullest-possible explanation to defend the British Aerospace decision. It is not for me to argue what is national interest or national security. But I think that the statement made so far by the Attorney-General asks many more questions than it answers. It surely should be a duty for us, who basically understand what the Prime Minister and the Attorney-General have to do, to try to obtain a much clearer explanation, which is as wide and as large as possible.
	Secondly, and perhaps most importantly, the Government must produce a new corruption Bill. Having produced it, they must find the time to take it through Parliament and then commit real resources to the policy of eradicating international corruption wherever it is manifest, as Transparency International which has sent some very good papers to many of us has said. How do we do that? We promote good governance. It is a long and difficult job, but it is infinitely worthwhile.

Lord Goodhart: My Lords, I was very impressed by the previous speech made by the noble Lord, Lord Renton of Mount Harry, particularly because Stephen Egerton, to whom he made several references, was my closest friend. I very much regret that he is not alive now because I would have had great interest in talking to him about the subject of this debate. At about 5 pm on 14 December, I was sitting at my desk in the attics of your Lordships' House when the annunciator told me that the Attorney-General would make a Statement in a few minutes. Ironically, I was here only because I was waiting to go to the Attorney-General's Christmas party. However, I thought that I should listen to the Statement, and what I heard frankly horrified me. It became apparent that the United Kingdom was submitting to Saudi Arabian blackmail by discontinuing the investigation into the possible bribery of Saudi officials by BAE Systems. Since then it has become apparent to me that that discontinuance was in all probability a breach of Article 5 of the OECD convention. Here I should perhaps declare an interest as a member of the advisory committee of the United Kingdom branch of Transparency International.
	Corruption poisons. It is a poison that does immense damage to developing states. Funds which should and could have been available to help people out of poverty are creamed off by their rulers and end up in Swiss bank accounts. The developed countries, particularly the members of the OECD, are working to cut back on corruption. That is why we have the convention, and it is why the United Kingdom became a party to it. That is also why we enactedPart 12 of the Anti-terrorism, Crime and Security Act 2001. So what do we do when the Saudis object to an investigation? We give in and terminate it.
	There are some curious aspects of the decision to terminate. The Prime Minister claimed publicly that it was his responsibility. If so, that was unconstitutional. The Prime Minister should never interfere in decisions on prosecutions. The Attorney-General says that the Prime Minister did not take that decision. Under our present constitutional arrangements, as the noble and learned Lord, Lord Mayhew, pointed out, it is the Attorney-General himself as the independent head of the prosecution service who is the right person to take the decision to stop investigations on the grounds of public interest. That is because he must be in a far better position than the head of the Serious Fraud Office to decide that question. But the Attorney-General did not take that decision. He left it to the director of the Serious Fraud Office, the unfortunate Mr Wardle.
	Why did we give in? According to the Attorney-General, it was on the grounds of national security. There is a suspicion that the real grounds, in the mind of the Prime Minister if not of the Attorney-General, were to protect the commercial interests of BAE Systems. There is a suspicion that the alleged danger to our security is based on evidence no more reliable than the evidence of Saddam Hussein's possession of weapons of mass destruction. Those are suspicions—no more than that—but they are not unrealistic suspicions, and if we are to dispel them we need answers to many questions. I shall outline six of them.
	First, we want to know what pressure BAE Systems put on the Government to end the investigation. Secondly, what did the Saudis say to BAE Systems or the Government would be the likely consequences of continuing the investigation? Did they make specific references to the removal of co-operation on intelligence? Thirdly, what advice or information did our security services give to the Government, and did that include any form of risk assessment? Fourthly, what advice or information did the ambassador to Riyadh give to the Government or to the SFO? Fifthly, what did the Prime Minister, the Foreign Secretary and the Defence Secretary say to the Attorney-General when they were trying to persuade him to end the investigation? Lastly, what did the Attorney-General say to the head ofthe SFO, and why did he not take the decisionhimself?
	What has been done has done severe damage to the worldwide battle against corruption and to the international standing of this country. I believe it is important enough to need a thorough and dispassionate inquiry into the circumstances leading to the termination of this investigation. This is more serious than the events which gave rise some 15 years ago to the Arms to Iraq inquiry. The question is: was there a threat to national security so severe as to justify overriding the rule of law, and to justify breaking the obligations of this country under both our domestic and international law? Or was it the case that the Government were guilty of obstructing the course of justice by blocking further investigations? We need and must have an inquiry into these circumstances.

Baroness Northover: My Lords, this Government place great emphasis on international development. When they chaired the G8 and held the presidency of the EU, that was their theme. The Make Poverty History campaign reinforced that. At the G8 in Gleneagles, they emphasised not only what the West could do, but what developing countries might do themselves. High on that agenda was tackling corruption. So when DfID published its White Paper last summer, following on from Gleneagles, its overarching theme was good governance, and the Secretary of State for International Development was made the Minister for tackling corruption.
	Introducing the DfID White Paper in the Commons last October, Hilary Benn said that,
	"one thing is clear beyond doubt—without good governance we will not be able to defeat poverty, or climate change, or war, or famine".—[Official Report, Commons, 26/10/06; col. 1737.]
	He was in no doubt that corruption went both ways—the givers as well as the recipients of bribes. Again I quote:
	"Bad governance can be caused or made worse by the actions of rich countries and their companies. For every bribe taken, there has to be a bribe giver; for every stolen dollar that is spirited out of a developing country, there has to be a bank account somewhere for it to go into".—[Official Report, Commons, 26/10/06; col. 1739.]
	The UK, he pledged, would renew its admittedly poor efforts in tackling this. Yet on 14 December the Attorney-General stated his desire to,
	"balance the need to maintain the rule of law against the wider public interest".—[Official Report, 14/12/06; col. 1712.]
	That balance was seemingly struck by abandoning the SFO investigation into BAE Systems. Surely the noble Lord, Lord Skidelsky, is right about the absolute nature of the rule of law. What is the British interest here? Succumbing to foreign pressure? British companies having the reputation for bribery?
	The Attorney-General stated that he had consulted the Prime Minister and the Foreign and Defence Secretaries, or was it the other way around? Did the Prime Minister approach him first? But if he felt it was appropriate to consult his political colleagues,did he consult the Minister tasked with fighting international corruption? It seems that he did not.On Tuesday, I had an Answer to my Written Question on that. DfiD's response stated that Hilary Benn's role,
	"as Minister leading on the fight against international corruption does not include being involved in decisions on individual law enforcement matters; and nor should it. This is properly a matter for the relevant investigatory and/or prosecuting authorities—the SFO in this case".—[Official Report, 30/1/07; col. WA 29.]
	Hilary Benn said in a reply to my colleague Alistair Carmichael in the Commons on 24 January that:
	"It would be improper for me to be consulted because that is an operational decision and quite properly that responsibility rests with the director of the SFO and the Attorney-General. Indeed, if I had been consulted on an operational decision, the hon. Gentleman might have been the first person to complain about it".—[Official Report, Commons, 24/01/07; col. 1410.]
	So do we understand from that that the SFO is to be at arm's length from politicians on operational matters? What of the other Ministers, even the Prime Minister? The Written Answer to me concludes by saying:
	"As the Attorney-General explained, he obtained the views of the Prime Minister and the Foreign and Defence Secretaries as to the public interest considerations raised by this investigation and conveyed them to the director of the SFO".—[ Official Report, 30/1/07; col. WA29.]
	We have heard that one of the public interest considerations related to information on terrorists. If so, and if it was appropriate to consult these Ministers, why was the Home Office not asked, or the Department of Trade and Industry on whether this decision would jeopardise the reputation of the City? Here I note that Hermes, Britain's biggest pension fund, has said that it threatens the country's reputation as a leading financial centre and would have a high long-term cost for business and markets. Can the Minister let us know whether he did consult the Department of Trade and Industry, and if so, what advice he received? What did the Foreign Secretary say about precedents? What will happen on Tanzania or South Africa? Might we decide to call off the SFO inquiries there because we suddenly need Tanzania's or South Africa's vote at the UN, perhaps on an invasion somewhere because we feel that that is in our national interest, and maybe they are siding with China, tied in with it over trade.
	The Saudi ambassador to the UK says that corruption must not be condoned. So is this about preserving BAE? We do not know.
	What does the Attorney-General think Hilary Benn should report to the Prime Minister this month on his new area of responsibility? Should he report the concern expressed by the OECD secretary-general about,
	"the political will of our members"?
	The Prime Minister wrote in the foreword to the DfID White Paper that,
	"there will need to be an effort right across Government to put our pledges into practice".
	Indeed.
	"Good governance",
	said Hilary Benn,
	"is about ensuring the rule of law ... Corruption hurts poor people and it undermines the accountability of political leaders and officials to their citizens".
	Indeed.
	The noble Earl, Lord Sandwich, spoke of double standards. If we are not to assume that this is what we are facing, could the Attorney-General explain to the House how the actions that he took just before Christmas in relation to BAE and Saudi Arabia can possibly square with the apparent sentiments so clearly expressed by his colleagues?

Lord Stoddart of Swindon: My Lords, I, too, congratulate the noble Baroness, Lady Williams, on bringing this matter before the House today. Like other noble Lords and many other people, I was very worried about the intervention of the Prime Minister into this matter and I tabled a number of Written Questions. Perhaps I may summarise them. I asked:
	"Under what statutory authority the Prime Minister used his executive power to order the termination of investigations of possible corruption in dealings between BAE Systems and Saudi Arabia",
	and what were the precedents. Secondly, I asked:
	"What legal or other advice the Prime Minister sought before the decision was taken";
	and, thirdly,
	"Whether the Cabinet was consulted before the decision was taken".
	I received the following reply from the Attorney-General:
	"The Prime Minister did not order the termination of the investigation. The decision to terminate the investigation was taken by the director of the Serious Fraud Office. The Cabinet was not consulted about that decision but, as explained in my Statement of 14 December 2006, the views of the Prime Minister, the Foreign Secretary and the Defence Secretary were obtained as to the public interest considerations raised by the investigation. This was done in accordance with the well established procedure known as a Shawcross exercise".—[Official Report, 22/1/07; col. WA 200.]
	Because I thought I must have heard wrongly, I looked at the transcript of the Prime Minister's monthly press conference on 16 January. I fear I shall have to quote extensively from it. It states:
	"QUESTION
	Prime Minister, you mentioned you are unveiling a Serious and Organised Crime Bill tomorrow. People inside the SFO would say that they were very hot on the heels of serious and organised crime involving the Saudi Royal Family and British Aerospace and that they were actually extremely close to prosecutable evidence when you drove a coach and horses through the case. Secondly, there are very few people when you really press them that believe the Saudis would ever have severed cooperation on security matters, that they in fact need us really rather more than we need them.
	PRIME MINISTER:
	I would not agree with that assessment. Look these are difficult decisions that you have to take as Prime Minister ... I think that had we proceeded with this investigation it would have significantly materially damaged our relationship with Saudi Arabia, that that relationship is of vital importance for us fighting terrorism ... and as I say all of that leaves aside the fact that we would have lost thousands of UK jobs. So you know I don't know who you are talking to when they tell you that we don't need the Saudis as much as they need us on counter-terrorism.
	QUESTION:
	And the message to the developing world in terms of anti-corruption, when you know that you had to use your executive position to override the rule of law?
	PRIME MINISTER:
	Look we have done, as you rightly point out, we have done more than any other country probably in recent years to push this forward and things like the Extractive Industries Initiative and so on in relation to Africa. But I have to take judgments, I mean I don't accept what you say, and I think the Attorney General made some mention of this at the time actually about the likelihood of prosecution. I don't actually accept what you say, but I have got to take a judgment about the national interest and that is my job, and you know when you come to views like this you expect it, and I knew I would be heavily criticised for it, but I believe it to be the right judgment, and you know this isn't just a personal whim of mine, it was the judgment of our entire system and I can assure you from everything that I know it was extremely soundly based".
	Yet the Attorney-General said that the Prime Minister did not take the decision. It is quite clear from the Prime Minister's own mouth that he did take the decision. He mentioned the Attorney-General only once in the whole of that questioning. So I have to come to the conclusion that the Prime Minister improperly used his influence and, in doing so,has undermined the good name of this country abroad.
	My other point relates to the Shawcross letter. As I understand it, Sir Hartley, who was an Attorney-General in the first post-war Labour Government, devised a list of criteria that he felt should apply to a prosecution. He decreed that political colleagues should be consulted to obtain all the relevant facts, including the effect of any prosecution, successful or not, on public order or morale. He also insistedthe decision must not be influenced by political considerations or pressure from colleagues. Clearly he did not believe that political considerations should come into it and, certainly, he would not have believed that his doctrine or his letter should allow a cover-up of commercial and political chicanery. That is what has happened in this case.
	I hope the Attorney-General will have another look at the Answer he gave to my very relevant Question, if I may say so, and correct any mistake that he may have made in giving such a reply.

Lord Dykes: My Lords, it is good to hear a former very senior member of the British Armed Forces, as well as a colleague on this side of the House, talking in those terms. I reflect with some sadness that in the debate so far the noble and learned Lord the Attorney-General has been helped in the arguments he has deployed by only two colleagues, the noble Lords, Lord Brennan and Lord Soley. That is a pretty vivid illustration of the way the House feels about this very disturbing matter.
	I warmly congratulate my noble friend Lady Williams of Crosby on her initiative and skill in putting down this Motion to ask the Government to give some important answers to some very serious questions. Although he is not in the Chamber at the moment, I thank the noble Lord, Lord Skidelsky, for making some very wise points indeed.
	Corruption of any kind—even the thorny problem of finding a definition of it that will stand up to searching analysis—is a hard item for parliamentarians to deal with. I recall that I made my own maiden speech in this House on 16 July 2004 on the very themes encapsulated in the Joint Committee on the draft Corruption Bill. If time allowed, it would be useful to go into all those matters now, but I shall spare the House from that. I am delighted that our colleague, the noble Lord, Lord Chidgey, is launching his own Corruption Bill soon, which will assist our progress in this complex field. However, it is mainly corruption at home that is in people's minds when they think of legislation like that; it is when corruption involves overseas that the stark issues we are discussing today arise.
	Coming back to the matter in hand, I begin by solemnly asking the Attorney-General to take a deep breath and reconsider his recent decision in respect of the SFO inquiry into BAE Systems—and indeed his future role, as has been enunciated by other speakers in this debate. In all the 27 years I spent in the House of Commons, and in the short period that I have been a Member of this House, I cannot recall a time when I felt more shocked and disturbed than I did at the noble and learned Lord's announcement on 14 December, a bleak day indeed in the history of our modern Parliament, of modern governance and indeed of a Government more beleaguered and discredited than ever before, for all sorts of reasons.
	We are now told on good authority that the SFO personnel have suffered a collapse in morale and self-confidence as a result of this intervention that will take a long time to repair. I do not accept the Written Answer given to me on 31 January by the noble and learned Lord on that matter. Incidentally, on the same day the Prime Minister was being grilled by the cops—as they say in the soaps—in Downing Street on the cash-for-peerages affair. There is now some reason for assuming that Scotland Yard, undaunted by some pretty nasty pressurising from foolish Ministers and others, is insisting on asking awkward questions and persisting with the inquiry; maybe even closing in on certain highly placed people, I do not know. That is nothing to do with this particular issue, but is gives a flavour of the atmosphere at the moment in this country and the way the public feel so disturbed about many of these things that are happening, when no proper explanations are being given. I cannot think of recent precedents for a principal inquiry by the SFO, a body which knows how hard it is to get the evidence to make the charges real and fit for court scrutiny and proper legal inquiry, being literally stopped in its tracks on the most artificial and spurious of arguments that would have made former South American dictators proud of their skills.
	At least the Attorney-General had a smidgen of grace in saying that he felt uncomfortable with the decision. That is one the greatest understatements in recent parliamentary declarations. This key investigation by the SFO had already gone on for a very long time, so hard had it been to gather evidence. Ominously, as the SFO began to get closer to the real facts and the truth behind secret bank accounts and the like, the arrogance of the Saudi rulers and princes came out in full force.
	Why is it so important for this Labour—yes, Labour—Government to give such succour to a pretty dubious regime, to say the least. I do not want to offend any Members of this House, but the idea that the Saudi Arabian regime is regarded as popular in the West or in most Arabian countries would be laughable. No one seems to ask for democracy in that country with the same intensity as did the Americans in Iraq. It is a country with an entrenched and reactionary monarchy which does not let people vote properly, although it is pretending to have discussions about it. It forces women into medieval dress codes and forbids them to drive cars. Even in Arabian countries, that is regarded as unattractive in a modern society.
	I do not believe that the Saudis would have discontinued security co-operation with the West or with this country if the investigation had continued. The survival of their own unappetising regime depends on such contacts anyway—it is two-way traffic in intelligence services as we know—and if the Saudi Government and various individuals were innocent of the charges to which the SFO investigation was leading, they had nothing to fear from this inquiry proceeding to its proper conclusion in line with international law.
	Thus has our own formerly distinguished nation in this context, with a long history of trying to reach probity and accountability both at home and abroad, prostrated itself with explanations which are so flimsy as to be laughable. I do not believe the preposterous notion that no weight has been given to commercial interests or the national economic interest.
	How on earth can the SFO credibly carry on the inquiries into slush funds in other countries? This is one of the more ludicrous fall-out effects of all. Presumably, the elected leaders of Romania, Chile, the Czech Republic, South Africa and Tanzania, who, unlike those in Saudi Arabia, are elected, can ask for the same exemptions, some of them with a much stronger claim on providing regular reliable security information to this country on a reciprocal basis. What a grotesque farce as well as an utter disgrace.
	It is no surprise to recall the origins of this deal—they go back to the mid-1980s, when Mrs Thatcher was keen on the president of Chile, Prince Sultan and King Fahd—and the huge commercial importance of this order. It is said that even Mr Mark Thatcher may have been involved at the margins, but I know nothing about the details of that.
	The Attorney-General has a legitimate responsibility to determine the genuine public interest of Britain. He is not required to give first place to the public and private interests of questionable characters in a government of a foreign country with a doubtful reputation, as many people would agree.
	We also now know from people here being prepared to be both brave and indiscreet that the chiefs of our security services had grave doubts over this sordid tampering directly by Number 10. There was even a suggestion that the British Government had seized on the argument of security co-operation before even the Saudis had begun to say the same things. We do not know; we are scrambling around for genuine and legitimate information on this matter. We ask the Attorney-General to think again.
	At the heart of this monumental disgrace is a dual role which is no longer valid in the modern world, with our complex need for full information and open government. The Attorney-General needs to think seriously about these matters and decide what he has to do.

Lord Chidgey: My Lords, in March 2006, the Africa all-party parliamentary group, of which I happen to be the vice-chairman, published its report, The Other Side of the Coin: the United Kingdom and Corruption in Africa. The report followed on in part from the United Kingdom Government's endorsement of recommendations by the Commission for Africa on how western Governments can support Africa's battle against corruption. It followed on from the UK's role in chairing the 2005 G8 summit, which committed G8 countries to take action on corruption.
	The group's report urged the Government rigorously to enforce existing laws and sanctions against international bribery and corruption. It urged the Government to bring to Parliament, before the end of 2006, a new anti-corruption Bill, which would address the concerns raised about the 2003 draft Bill by the Joint Parliamentary Committee and the OECD phase 2 review.
	In June 2006, Downing Street endorsed our report's conclusions that the Government should take a proactive approach to combating international corruption and support African leaders who were trying to crack down on corruption in their own countries. Downing Street agreed to implement most of the recommendations. The Prime Minister appointed Hilary Benn, the Secretary of State for International Development, as the "anti-corruption champion across Whitehall". The Government's response was welcomed. It was a signal that they were sincerely focused on how Britain could help fight corruption in Africa.
	However, less than six months later, the decision in December 2006 by the Attorney-General to drop the investigation into the Saudi arms deal ran totally counter to the spirit and letter of the Government's promises in June. The decision to drop the investigation has risked comprehensively undermining Britain's credibility in the battle against corruption in Africa and elsewhere. Dropping the investigation has damaged the painstakingly established confidence won by British exporters in trade, in commerce and in the service industries. Dropping the investigation has attracted puzzlement, followed, frankly, by scorn from the international institutions charged with exposing and eliminating corruption, institutions of which Britain is supposed to be a foremost member.
	Is it any wonder, for example, that President Mbeki of South Africa accused the Prime Minster at the Davos summit of double standards? He claimed the decision to drop the corruption investigation into BAE Systems' dealings with Saudi Arabia, but not its relationship with South Africa, left his country tainted. According to the Times of 27 January, President Mbeki said:
	"It does puzzle me why a strategic interest with regard to the work of BAE, there should be a strategic interest that would arise in one country and does not arise in other countries".
	I understand that the Attorney-General has insisted that Serious Fraud Office investigations into BAE Systems' activities in Romania, the Czech Republic, Tanzania, and Chile, as well as South Africa, are all to be pursued "vigorously".
	It would be little short of amazing if Britain did not have strategic interests in any of these countries. After all, international terrorism is supposed to be a worldwide phenomenon: it is an international war. It would be puzzling if, in some of these countries, the interests were not so strategic as to be vulnerable to the sort of pressure which has apparently been exerted by Saudi Arabia. When we look at strategic interests, we must think about international terrorists and the traffic in drugs and people, which is happening in many of the countries which appear to be on the hit list.
	All of this begs the question whether the threat to halt the exchange of intelligence material with Britain emanated from the Saudi Government at all, particularly given the huge risks of cutting of one's nose to spite one's face in such an action, as has been eloquently stressed by noble Lords in earlier comments.
	In reaction to the Serious Fraud Office's decision to terminate the investigation into the UK-Saudi arms deal, the secretary-general of the OECD stressed the important role of Governments in preserving the integrity of the OECD's Anti-Bribery Convention. He made it clear that the political will of members, individually and collectively, to support and enforce the convention was of critical importance, but the Working Group on Bribery had serious concerns as to whether the UK's decision to drop the investigation into the Saudi arms deal was consistent with the convention, to which the UK is a signatory.
	It is a sad day for any claim that the UK might have had to be leading the fight against corruption in the world when 35 out of 36 of the signatories tothe OECD convention have serious concerns about the UK being committed to complying with its terms. Will the Attorney-General tell us how the Government intend to dispel the perception of double standards when in March they next meet the Working Group on Bribery?
	In that context, one of the issues that surely should be addressed—it has been mentioned by a number of noble Lords in this debate—is the requirement of the consent of the Attorney-General for the Serious Fraud Office to prosecute a corruption offence.
	There is no doubt that the UK would advocate that in developing countries, decisions of criminal investigation and prosecution authorities should be wholly independent of government. If the Government had brought forward a corruption Bill by the end of last year, as promised, this issue could have been already resolved. Nevertheless, Ministers will be aware from the comments made by my noble friend Lord Dykes that a draft Bill is readily available. It has had its First Reading in your Lordships' House. Ministers will have noted the Private Member's Bill published in my name, entitled the Corruption Bill, does not require the consent of Attorney-General for the SFO to prosecute a corruption offence. This Bill began life as a 10-Minute Rule Bill in another place, drafted with the support of Transparency International and presented by Hugh Bayley MP with cross-party support from senior members, led by John Bercow MP and Malcolm Bruce MP.
	The Government should be concerned with re-establishing the UK's integrity and reputation with the OECD in tackling bribery and corruption. By supporting the Private Members' Corruption Bill at its Second Reading, due this month, they can, at their meeting in March, demonstrate to the OECD Working Group on Bribery that their concern is genuine and their commitment deep—something that they have so far failed to do.

Baroness Taylor of Bolton: My Lords, I must first congratulate the noble Baroness, Lady Williams, on initiating this debate. I want to follow up some of the points that she specifically raised at the beginning. But I start by saying that we should all welcome the fact that we are now discussing this issue in a totally different context and climate to any comparable debate 20, 15 or even 10 years ago. An awful lot has changed; in those days, the general attitude throughout the world was to keep quiet whenever possible about issues of bribery and corruption and to assume that it was right to turn a blind eye and that even if anyone wanted to take action nothing could be done. Thankfully, in the UK and the world generally, some progress has been made and these issues are now being discussed in a totally different context—that of discussing what possible action should be taken with the different presumption that action should be taken whenever possible. That is a very different backdrop to what we would have had even 10 years ago.
	The Government deserve credit for the role that they have played in that both in publishing criteriafor assessing licensing decisions, which goes back10 years, but also the legislation of 2001. But I remind the House that although we have a different climate in which to discuss these issues, it does not mean that bribery and corruption is an easy problem to tackle or to deal with. We have to be realistic in any case, with any prosecution that involves these issues in a foreign country, that they will be difficult to clarify and not easy to prove. The noble and learned Lord the Attorney-General has made it clear in the BAE case that he did not think that a successful prosecution was a likely outcome, and I think that we should all accept his word. I certainly do.
	Even had the situation been different, as the noble and learned Lord, Lord Mayhew, was saying, and the noble and learned Lord the Attorney-General had been convinced that a successful prosecution was likely, he would still have had a duty to consider the consequences of any such prosecution and, in particular, a duty and responsibility to consider national security interests.
	Like one or two other noble Lords who have spoken today I am not a lawyer. It is strange that we always want to make that clear! I am not sure that I understand all these procedures precisely. However, as I understand it, the Serious Fraud Office has to abide by certain principles which are set out in the code for Crown prosecutors, which is why there are two stages to the decision: first, whether there is sufficient evidence and, secondly, if there is sufficient evidence, whether it is in the public interest to pursue the case. To my simple mind, that means that the procedures that are laid down anticipate that there will be cases in which the national interest takes precedence—otherwise, why would we have that kind of two-tier procedure? In the case of BAE Systems or any other case the basic questions are whether there is sufficient evidence and whether public interest takes precedence.
	We have heard again today demands to know who gave advice on what was in the national interest and, in particular, what was the role of our intelligence and security services and whether the decision was made on political or economic grounds. The fact that the SFO is pursuing other cases involving, among others, BAE in other circumstances, leads me to believe that it is serious in its intent in examining all these cases carefully and that we should not simply write off all those cases as an earlier speaker did.
	When the noble and learned Lord the Attorney-General wrote to the noble Lord, Lord Garden, on18 January—a letter that has been used by noble Lords several times today—he said that the decision,
	"was based on potential damage to the UK's counter-terrorism strategy, and ultimately on the risk to the lives of our citizens and service people if the case had gone ahead. The judgment was that UK co-operation with Saudi Arabia in the counter-terrorism field is of crucial importance; that Saudi Arabia is a source of valuable streams of intelligence on Al Qa'ida and other terrorism activity".
	We all know that those threats are real.
	To some, that statement simply provokes demands for making the information public. I remind the House that demands of that nature for more information in the public domain led to the publication of the dossier on Iraq in September 2002 and the whole debate about the nature of intelligence and levels of understanding about the limits of intelligence. I was close to that issue at that time and do not want to say too much about it, but any public statements by agency heads on issues of this kind will lead either to demands for more and more information or to accusations that they have been leant on, or both. I urge some realism about the necessary caution that must be exercised in these matters.
	We have heard also demands for proof of what would have followed had there been a successful prosecution in the BAE case. I do not think that we can pretend that anyone knows with certainty. Would the Saudis have withheld co-operation or been less willing to share vital information? Would they have been less willing to take risks themselves? My answer is that I do not know for sure—and I doubt whether anyone in this House knows for sure, including Ministers. But Ministers have to make decisions; they have to consult agency heads, diplomats, the Secretary of State for Foreign Affairs and, yes, the Prime Minister who is closely involved in receiving information on intelligence assessments. At the end of the day, Ministers have to make a decision, which involves national security and therefore cannot be taken lightly—otherwise Ministers will be accused of dereliction of duty if they did not give protection of the citizens of this country absolute priority.

Lord Thomas of Gresford: My Lords, the noble Lord, Lord Soley, invited us to take a historical perspective of the problems that are before us. I am sure that the late lamented Lord Russell would have taken up the challenge and referred to Francis North, who was the Attorney-General during the troubled Restoration period under Charles II. Lord Macaulay rather shrewdly observed that a lawyer who after many years devoted to professional labours engages in politics for the first time at an advanced period of life seldom distinguishes himself as a statesman. I have to declare an interest in that regard.
	Francis North lived in dangerous times. His brother wrote of him that as Attorney-General he was continually tormented with rascally projects and the unreasonable importunities of great men at the heels of them. While Crown Court judges and members of administrative tribunals cannot be removed, save for inability or misbehaviour, the noble and learned Lord the Attorney-General is in a very different position. The weakness of his appointment is that the Prime Minister can sweep him away at will at any time. He has no tenure. This was the case a long time ago. In 1810 Sir Francis Burdett pointed out that the Attorney-General was entirely dependent on the Administration. He said that he was the creation of its breath and that his official existence expired with the frown of the Minister.
	The noble and learned Lord the Attorney-General is tied to the Prime Minister and to his legacy, and there are plenty of rascally projects about. If Mr Blair will be remembered as the Prime Minister who took us into the Iraq war, the noble and learned Lord, Lord Goldsmith, will be remembered as the man who changed his mind on its legality. If today's Guardian is right—we wait to hear from the noble and learned Lord the Attorney-General in due course—he will be remembered as the man who was prepared to sanction the prosecution of the chief of British Aerospace on lesser charges and to seek a plea bargain in order to put an end to an uncomfortable investigation, but that under pressure from the Prime Minister he changed his mind. He said that it was not his decision.
	The noble Baroness, Lady Taylor of Bolton, rightly crystallised the two legal issues, although she tells us that she is not a lawyer. First, the noble and learned Lord the Attorney-General says that on his investigation there was no case. All we have heard so far is that the prosecution could not call a witness from the Saudi Government to prove that it was wrong for the person receiving money from British Aerospace to receive the bribe at all. If there is plenty of evidence that a bribe has been given to a foreign agent, that is enough for a prosecution in this country. It is like saying about a football manager who takes a bung that you cannot prosecute him for bribery unless you call the chairman of the football club to say that he should not have had it. It is totally unnecessary to prosecution. Of the reasons that we have heard so far that there is no case, there is nothing that satisfies lawyers.
	The second reason is national security. The interview with my noble friend Lord Goodhart published in yesterday's Financial Times was very helpful on how this decision was taken. He said in terms that the Saudi threats are not being made to the intelligence service; they are being made to the Government. He was asked directly whether the security services ever offered specific intelligence about whether they thought the action threatened by the Saudis was likely to happen if the investigation continued. My noble friend replied that they certainly did not disagree that the Saudi threats were real.
	Therefore, this threat to national security does not come from the intelligence services. That, indeed, is what has been said by the SIS itself. As one takes apart and deconstructs what the noble and learned Lord the Attorney-General said yesterday, the matter appears to have started with the ambassador because he told the SFO what his judgment on the consequences was. The SFO was taken to the ambassador so that it could hear directly from him what the consequences would be if the investigation continued. According to the noble and learned Lord the Attorney-General, the matter went from the ambassador to the Prime Minister. He said that it was clear from the Prime Minister and the other senior Ministers what the national security concerns were. The judgment was reached by the Prime Minister and senior Ministers as to what the consequences would be. When asked whether there was a national security issue, he said that there was no doubt at all that was the judgment of the Prime Minister and of senior Ministers. That was the point made by the noble Lord, Lord Stoddart—it is the judgment of the Prime Minister that is in issue. From the Prime Minister it goes to the noble and learned Lord the Attorney-General, who carries it to the SFO, which goes back to the ambassador to find out what he is saying. Is it a matter of national security? It is not intelligence; it is what somebody has said to the ambassador in Riyadh. That is as far as it goes. There are no hidden secrets about it, save in so far as there were no doubt discussions on an ambassadorial level.
	My noble friend Lord Goodhart reminded me of the afternoon of Thursday 14 December. I was engaged in Grand Committee on the tribunals Bill. At about 3.30 pm I received an urgent message that the noble and learned Lord the Attorney-General wanted to see me at a meeting at five o'clock. The Grand Committee adjourned. I turned up at five o'clock at the office of the noble and learned Lord the Attorney-General. Nobody was there. The noble Lords, Lord Cope and Lord Kingsland, turned up. We thought that we must be in the wrong place, but at about seven minutes past five the noble and learned Lord the Attorney-General arrived with his retinue and produced the Statement. I will not go into what was discussed but within seven or eight minutes we were in the Chamber. The only time I had to discuss the matter with Simon Hughes, who was there, was walking down the Not-content Lobby to this door. By the time I reached the door, the noble and learned Lord the Attorney-General was on his feet and I was required to respond straightaway.
	I protested that the public interest in the prosecution of international corruption was of the highest order and said that if we permitted international corruption to continue in any way or seemed in any way to give a go-ahead to a large British industry, however much that might be in the economic interests of this country, we damaged international relations in the broadest sense. I had strong support from my noble friend Lord Goodhart. He was so passionate and coherent about it that I assumed somebody had told him but not me. I consider that was an unworthy attempt, late on a Thursday afternoon at the end of the Session and in an empty House, to bounce the Opposition into an unguarded assent to the decision that had been taken. The noble and learned Lord the Attorney-General told us that he had considered the matter for days, but not a hint of that was passed on.
	What about the future? What does it mean? First, I entirely support the suggestion of an inquiry made by my noble friend Lord Goodhart. There are serious questions to answer which affect the integrity and reputation of this country. Secondly, the noble and learned Lord the Attorney-General must realise that his position will be impossible to defend if he involves himself in the decision to prosecute in the loans-for-peerages scandal. The public perception is that he bends principle to political pressure. He is caught either way. Sanctioning prosecution will be perceived as an assertion of his independence; stopping prosecutions will be perceived as an expression of his dependence. This may be unfair but I have to tell your Lordships that I have myself strongly defended the noble and learned Lord the Attorney-General against vituperative attacks on his integrity from members of the legal profession who were Labour supporters.
	Thirdly, it is essential that the office of the Attorney-General be cut loose from the Government of the day. As in other countries, the Attorney-General should be seen to be utterly independent in making decisions about prosecutions with political consequences. The role as legal adviser to the Government must be fulfilled in other ways, perhaps through a ministry of justice, but that role of deciding on prosecution must come away from government. This Government have not hesitated to throw away the Lord Chancellor, wig and breeches and all the rest of it, and they should not hesitate to take the step of dividing up the functions of the Attorney-General.
	I end with the wise words of the noble Lord, Lord Skidelsky; you either have a rule of law or you don't. If we allow this situation to continue, we do not have the rule of law in this country.

Lord Goldsmith: My Lords, I thank the noble Baroness for providing the opportunity to debate these issues, and I hope to clear some of the air. It is not the first time that I have come to the House to deal with these issues. I came here immediately that the SFO reached its decision. The noble Lord, Lord Kingsland, at least, welcomed the fact that I did so, even though the noble Lord, Lord Thomas of Gresford, takes a different view. I answered a Question on this matter in the House on 18 January. It was also raised on 11 January in a debate on poverty and governance, to which my noble friend the Leader of the House responded and referred to this matter.
	I am very happy to be here today and will do the best I can to answer the many questions. I thank all noble Lords for having spoken; it has been a wide-ranging debate. I want to come back to the issues surrounding the BAE case, because a number of misconceptions and inaccuracies, and worse, have been expressed about it and it has touched on the issue of my role. That is an entirely legitimate matter of public debate, and one sees from the newspapers that I am getting a lot of helpful advice from my ministerial colleagues, for which I am extremely grateful, and other Members of this House.
	The noble Lord, Lord Henley, in his final remark, was absolutely right and I will come back to that. It is only because I am a Member of this House that I am accountable to Parliament for what I do, that I am here answering these questions, that I answered the questions put previously and that I have answered—together with my deputy, the Solicitor-General—something like 20 parliamentary Questions and we have corresponded with some 30 Members of both Houses on this matter. That would not have happened if the role of Attorney-General were fulfilled by an independent civil servant. I very much commend to this House the wisdom and experience of the noble and learned Lords, Lord Lyell of Markyate and Lord Mayhew of Twysden, who, between them, if my arithmetic is right, have 19 years of experience as law officers—far more than I have. When they point to the importance of accountability and the way that prosecution decisions are taken, to which I shall return, the House should, I respectfully suggest, take strong note. I have always paid strong note to what they have said.
	I start with a point on which I think there is agreement: the strong commitment of this Government to tackling international corruption. The decision of the SFO director to stop the BAE Systems case in relation to the Al Yamamah contract emphatically does not mean that we are backing off from that commitment. On the contrary, I am clear that we need to redouble our efforts. So the SFO is actively pursuing a number of investigations into suspected international corruption, including some involving BAE Systems. I have told the SFO that it should pursue those cases vigorously. It is important to send out a clear message, and I have tried to do so, that no company or individual is above the law. I shall explain in a moment the other steps that we have taken.
	I want to repeat some basic facts about the SFO decision. The decision to halt the case was taken by the director of the Serious Fraud Office, not by me, let alone by the Prime Minister. What the Prime Minister said was that he took responsibility for the advice given about national security. I shall return to that issue, but I can assure this House that the decision was not taken by the Prime Minister. I would never have allowed that to happen. The director of the SFO has been very clear in what he has said. The noble Lord smiles at that, but that is the fact. I would not stand at the Dispatch Box and say that if it were not the case. The director and the assistant-director of the SFO, who attended the recent meeting of the OECD working party, have made that plain.
	Secondly, the decision was based on the risk to national and international security, and ultimately the risk to UK lives, if the investigation had continued. I suggest respectfully that those who expressed concern about the director's decision need to be clear about what they are saying. Are they saying that there was no risk to national security? That is the view of the noble Lords, Lord Garden and Lord Dykes. If so, they should say why their judgment and knowledge on these issues is better than that of those whose job it is to deal with them, including the Prime Minister, senior Ministers, our intelligence agencies and our ambassador. The director and I would value the co-operation of those people, if advice came about the risk, above the opinions expressed by either of the noble Lords, despite their distinction and background. If the noble Lords are not saying that, do they accept that there was a risk to national security but that the SFO should have continued with the investigation regardless, potentially and ultimately putting at risk the lives of our citizens? That is what national security is about. Is that what they are saying? You cannot get away from answering those questions. We cannot wring our hands. We had to reach a decision. The director had to reach a decision. He did so on the basis of advice he received about the risks to national and international security. I agreed with that decision but took into account my own view that the case was unlikely to lead to a successful prosecution in any event.
	It was not a decision taken lightly. Of course, there are countervailing considerations, many referred to by noble Lords today—the reputation of this country, our commitment to tackling corruption, the message that we might give to others—but, at the end of the day, sometimes hard decisions have to be made;one has to grasp the nettle, and the facts were that there was a real threat that had to be considered properly.
	We also take very seriously our international obligations, and I shall come to that, but let me say a little more about what the SFO and Government are doing to combat international corruption. The thrust of the noble Baroness's Motion is what we are doing to commit ourselves to that task. The SFO is pursuing other ongoing and active investigations in relation to BAE Systems and to other countries. This week, arrests and search warrants were executed in relation to one of those cases. The SFO is investigating part of the subject matter into suspected corruption in the UN Oil for Food programme concerning alleged fraud involving contracts to supply humanitarian goods to the Iraqi Government. I am very happy to be able to tell the House that the Treasury has recognised the importance of the SFO investigation into the humanitarian aid aspect of Oil for Food, and today I have been told that we have been provided for that purpose with approximately £22 million additional funding. That indicates the commitment. I have told the director of the SFO that I expect him to pursue these investigations vigorously and that, if more resources are needed, every effort will be made to find them. I want it to be clear that neither BAE nor any other company or individual is above the law or somehow immune from action in this area.
	In addition, the Government are taking other action to combat international corruption. The noble Baroness, Lady Northover, raised this matter, and I have discussed it with the right honourable Hilary Benn, Secretary of State for International Development. There is a four-point plan to investigate and prosecute bribery overseas, to eliminate money laundering and to recover stolen assets, promote responsible business conduct and support international efforts to fight corruption. It is not just a plan, action has taken place: things have been happening; we have more investigative capacity; there is a new international corruption group, staffed by City of London and Metropolitan Police officers. It is that group, I think, that dealt with the arrests this week. If I said that the case was a BAE one—I do not think that I did—I stand corrected; it was a non-BAE case.
	There is also the new SFO vetting standards and overseas corruption unit. We have played an important part at the inaugural conference of states parties to the UN Convention against Corruption. We are working closely with our international partners to agree guidelines for technical assistance and are providing that technical assistance. For example, the SFO recently provided training to prosecutors from Nigeria.
	The noble Lord, Lord Brennan, mentioned the importance of prevention. A good example of the work that this country is doing in prevention is our promotion of the extractive industries transparency initiative, which supports improved governance in resource-rich countries through the full publication and validation of company payments and government revenues. There have been other results, too. Moneys have been stopped, having been brought from Nigeria, and the High Court has ordered the return of other moneys to Nigeria.
	Let me turn to the issue of the legal decision taken and the OECD convention. The noble and learned Lords, Lord Lyell and Lord Mayhew, the noble Lord, Lord Brennan, and the noble Baroness, Lady Taylor, made it clear that, under the system that we have operated for many years—it is set out in the Code for Crown Prosecutors, which was laid before Parliament and to which I consistently refer in this House and in correspondence—there are two tests for prosecution. The public interest test is nothing new; it is consistently applied. Nothing could be a stronger example of public interest than where national security is involved. It happens that decisions have to be made about prosecutions the result of which might be that we would have to reveal information that would be damaging to national security. If so, we do not go ahead. We think about it very carefully, but we do not go ahead. That is the norm.
	What, then, is the position of the OECD convention? The critical words are:
	"Investigation and prosecution ... shall not be influenced by considerations of national economic interest"—
	I underline the words "economic interest"—
	"the potential effect upon relations with another State or the identity of the natural or legal persons involved".
	The director of the SFO and I are firmly of the view that the decision taken was compatible with Article 5 of the OECD convention. I do not believe that the convention does, or was ever intended to, prevent national authorities from taking decisions on the basis of such fundamental considerations of national and international security. I do not believe that we would have signed up to it if we had thought that we were abandoning any ability to have regard to something as fundamental as national security, and I do not believe that any other country would have signed up, either.
	Two points make this case very special. The decision was not based on commercial interests; it was based on national security. A key point is the crucial importance of Saudi Arabia as a partner in the UK's fight against terrorism. I set this out in some detail in the letter to the noble Lord, Lord Garden, which has been placed in the Library. Saudi Arabia is a source of valuable streams of intelligence on al-Qaeda and other terrorist activity that may represent a threat to the UK, to our citizens here and abroad and to our Armed Forces. Saudi Arabia also plays a key role in the Government's efforts to promote peace and stability in the Middle East. This is important not only in relation to international tension but in reducing a sense of grievance in the Muslim world, which has an impact here at home. The question was asked whether this applies to other countries. I do not see how it does, because of the particular position of Saudi Arabia as a partner. Having been advised of the risk, the director concluded that it was not one that could properly be run in the public interest.
	The noble Lord, Lord Chidgey, suggested that 35 out of 36 members of the OECD working group took the view that there was a problem. That is not what I am told happened at the meeting, which I did not attend. But let there be an inquiry; let the working group consider it, if that is what it wants to do. That is fine. We have responded fully and explained it. I do not have a difficulty with this. I believe that the group was grateful for what we said. Equally, it has continuing questions about our law. The noble Lords, Lord Chidgey and Lord Renton of Mount Harry, referred to the prospects for an anti-corruption law. These are proper questions, which will need to be debated.
	I need to deal with one or two matters specifically. First, the position of SIS, the secret intelligence agency, was raised. I have dealt with this in the House and I want to say something about it again. SIS has made it clear publicly that it shared the concerns of others in government over the possible consequences for the public interest of the SFO investigation. It considered that there was a threat to the UK's national security interests from pursuing the Al Yamamah investigation and it had been informed of the threat to curtail co-operation directly. Neither SIS nor anyone else who was consulted disagreed with the overall assessment that the Saudi threats were real. SIS agreed that, while it did not know whether this threat would be carried out, it had to be taken seriously. As I said on 18 January, before the SFO decision was taken, I discussed the matter directly with the chief of SIS. The SIS has authorised me to say that it is clear about the importance of the Saudi counterterrorist effort to the UK. Its view is that it would not be possible to replicate the level of counter-terrorism effort that had been achieved with the Saudis on UK/Saudi aspects of the problem if it were necessary to work at one remove, via the USA, for example.
	I turn briefly, as time is short, to my own position. An interesting thing about the debate, given that the director and I have made it clear that he took the decision, is quite why there is such a lot of focus on my role, but I am perfectly happy to deal with that and, in due course, to respond and to debate the issues. Accountability seems to me an absolutely critical issue, which must be put into the balance in any case.
	I have to say something about the speech of the noble Lord, Lord Lester, which appeared to me to be very much his article in today's Guardian—none the worse for hearing it twice. He said that I have argued that the Attorney-General should be at the heart of government so that he may be politically influential. I do not recall ever having said that. It is not my position. Indeed, I have taken some care to ensure that my involvement in political affairs has been very limited. No one has ever seen me on "Question Time". No one has ever heard me speak at a party conference. If I dare to say it in the presence of two distinguished former Attorneys-General who were members of the House of Commons, I have not been round the country canvassing for my own seat, let alone anybody else's.
	However, I believe that there is real value in being a member of the Government. For example, I would like to think that one of the achievements of my time here has been the strengthening of the position of prosecutors. The Crown Prosecution Service has gone from being, to some extent, a demoralised, undervalued service to being a forward-looking service serving the interests of the community and helping to bring offenders to justice. I do not believe that that could have been achieved if I had not been in this position in government, with the ability to talk directly to other Ministers.
	Let me deal with the story in this morning's Guardian. It is the case that at one stage the SFO contemplated inviting BAE and certain BAE executives to plead guilty to certain charges. No charges had been laid. Counsel had been consulted on that course and I did not object to it, although it is of course entirely a matter of speculation whether anyone would have been prepared to plead guilty. It is quite untrue that I changed my mind about the case. I was sceptical about the evidential basis of the case for quite some time, but I allowed the SFO to seek to deal with the problems. After it became apparent quite how dangerous the issues of public interest were, I cleared my diary and spent three days, I think, on this. I called in the SFO investigators and asked them to take me through all the detail, which I had not been able to do before.
	I took the advice of very experienced leading counsel and formed the conclusion that, ultimately, this case was not going to succeed. I have stood at this Dispatch Box often enough on failed prosecutions, concerning the Jubilee Line, the Burrell prosecution and the case of Trooper Williams, when noble Lords have looked at me and, even if they have not said it, in their eyes I have seen the question, "Didn't you see this coming?", to which the answer has always been, "Well, yes". The question is then, "So what did you do about it?", and the answer is, "I let them get on with it". I am sorry but if, after 18 months of investigation, damage had been done to this country, I would have stood at this Dispatch Box trying to answer the question, "Why did you allow this to go on?", but I would not have had an answer. I do not think that it is in the interests of this country to allow that sort of risk to occur.
	The SFO took the decision that, in the public interest because of national security risks, the investigation should not go on. I agreed but I had that additional important consideration in my mind. As I said, I cannot believe that we would ever have agreed not to take that sort of national security considerationinto account, still less that we should not take it into account in a case which was, at best, doubtful and, in my view, would never have got anywhere.
	What advice should be given to those who are doing business in Saudi Arabia? It would be: do not commit criminal offences. The whole issue of bribery and corruption is difficult but we are determined to tackle it; we do not condone involvement in corrupt practices anywhere.
	If noble Lords will permit me to take a moment or two longer, I shall respond to the noble Lord, Lord Skidelsky, who raised a very important point. He said that the phrase "balancing the rule of law against the wider public interest" could lead to misunderstanding, yet he rightly identified, unlike one or two other noble Lords, that those words were from the SFO press release. I read it out in the House but they were not my words. On reflection, I think that there is a risk of misunderstanding in those words. I understood that the SFO was seeking to say that the desirability of bringing a criminal prosecution needed to be balanced against national security. That is a perfectly proper balance to bring, but I am very happy to make it clear from this Dispatch Box—if this is repudiating the statement, I am happy to do so—that there is no question of saying that the rule of law in general should be set aside for wider interests of expediency or political or national interest. I hope that that at least clarifies the issue.
	If the House will permit me, I shall conclude by dealing with the six questions put to me by the noble Lord, Lord Goodhart. What pressure was put on the Government by BAE? So far as I was concerned, and as I answered in a question from the noble Lord, Lord Avebury, whom I see in his place, representations came from BAE to me about the public interest in November 2005, but I forwarded those to the SFO and did not engage with BAE at all. What did the Saudis say were the likely consequences? Neither I nor the SFO had any direct contact with the Saudis, but it was made clear by the Prime Minister that theyhad threatened to withdraw counter-terrorism co-operation if the investigation went ahead. The ambassador said that those threats were real; the Saudis were not bluffing.
	What advice was there from SIS? I have now given that answer. What advice came from the ambassador? The Solicitor-General has answered a parliamentary Question explaining that Mr Wardle met the ambassador three times. He confirmed the risks of damaging counter-terrorism co-operation with Saudi Arabia if the investigation went ahead. What did the Prime Minister, the Foreign Secretary and the Defence Secretary say to me? I set out the basis of the national security interest in the Statement of 14 December and in the letter to the noble Lord, Lord Garden. I obviously cannot go into the precise details, as that would involve disclosing information about our counter-terrorism arrangements.
	The final question was: why did the Attorney-General not take the decision? I said that I agreed with it, but I have to say that the House cannot have it both ways. If it is an investigation being carried out by the SFO, one side says, "You should not interfere", and the other side says, "You should take the decision". I have done the best that I can.
	We have a strong commitment. We intend to send a very clear message. I hope that noble Lords who agree with us about the importance of the anti-corruption fight will now help us to send out that message strongly to the world. I shall answer any questions that I can and I will continue to be accountable, but let us now recognise that the BAE case and Al Yamamah was a special instance. Our commitment is there; let us now work together to demonstrate that Britain will lead the world in fighting corruption.

Baroness Williams of Crosby: My Lords, I thank everyone who has taken part in this important debate and I thank the noble and learned Lord the Attorney-General for his very full response to the many questions raised. I shall reflect on just three matters.
	The first is that there is real incompatibility between the definition of the public interest as set out in the Code for Crown Prosecutors and the indications clearly laid out in the OECD convention about the grounds that cannot be taken into account in making a decision on whether to go ahead with a prosecution. I ask the noble and learned Lord the Attorney-General to devote his considerable mind to the question of how to make compatible our commitment to the convention, the Code for Crown Prosecutors and what has actually happened. There is a real problem here.
	Secondly, the noble and learned Lord the Attorney-General rested heavily on national security, but no one can question him about that and he knows it. But a very serious problem with the argument for national security is that, if it is undefined, it is not clear whether national security considerations are laid out in any greater detail or whether any signatory to the OECD bribery convention could be covered by arguing that national security means that they cannot conform to the requirements of the convention. That is serious, because it blows the convention to pieces.
	Thirdly and finally—I put this as strongly as I can to the Attorney-General—are the points raised most significantly by the noble Lord, Lord Renton of Mount Harry. He was right to say that the record of this country in the field of corruption has been poor. Incidentally, as the noble Baroness, Lady Taylor of Bolton, said, it is important to note that this issue goes back a very long way and that, at a much later stage, inquiries about the Al Yamamah contract in 1988 were buried; they were never brought to public attention or put before Parliament. She was right to say that, in that respect, the atmosphere has changed remarkably. For that very reason, we have a great deal to prove.
	The noble and learned Lord the Attorney-General said that the Government were not backing off from their commitment to the fight against corruption. There are three ways in which he can prove that to be true. The first is to address, as I have already said,the incompatibility between our ratification of the convention and our own Code for Crown Prosecutors. The second is to give full government support and time to the Bill brought forward by my noble friend Lord Chidgey, which will come to this House on 16 March, because that will be proof of whether the Government mean what they say about the battle against corruption. The third—the noble and learned Lord the Attorney-General has given us some commitments in this respect—is to confirm that all other instances of corruption and bribery where no major national security consideration is to be borne in mind should be prosecuted clearly and strongly. Bluntly, the fact that there has not been a prosecution in a single case since we ratified the convention raises very large questions about the credibility of our commitment—questions which I believe the noble and learned Lord and his Government now have to address. I beg leave to withdraw the Motion for Papers.

Baroness Linklater of Butterstone: rose to call attention to the challenges that high reoffending rates cause to society and to the effectiveness of alternatives to custody; and to move for Papers.
	My Lords, this debate comes at a time of unprecedented crisis in our prisons. Overcrowding has reached the point where not only are prison places full to capacity but both police cells and even court cells are having to be used to hold prisoners until a bed can be found. In desperation, the Home Secretary ordered back into commission a wing in Norwich Prison, which the Chief Inspector of Prisons had deemed unfit for habitation and which had sewerage overflowing down the walls in one area. He is also looking again at prison ships, disused military camps and has felt it necessary to communicate with our judges to remind them of that part of their role which is to use custody as a last resort. Of course, they have to consider that when sentencing anyway.
	His reminder is not misplaced. In recent years, both judges and magistrates have steadily increased their use of custody. This is partly because of recent legislation which has introduced, inter alia, mandatory sentences, indeterminate sentences and breaches of civil offences, increasing both the number and length of custodial sentences. It is also because sentencers have steadily chosen earlier use of custody and custody for lesser offences.
	Over the past 10 years in the Crown Court, the use of custody has gone up from 49 to 61 per cent. In the magistrates' courts, it is up from 6 to 16 per cent, a massive rise. Yet the number of people found guilty over the same period has remained constant. It is a desperate situation, which seems even more unacceptable because it has been predicted for many years. It demonstrates the lack of a coherent long-term strategy which deals effectively with prisoners, almost amounting to paralysis in bringing the prison population into line with available resources.
	There are various ways of demonstrating effectiveness. The most commonly used indicator is reoffending, because it demonstrates how well the public is being protected—a primary purpose of prison—and how well prisoners are rehabilitated, or at least deterred from committing further crimes. Over the past 10 years, reoffending has risen steadily, and is now at an all-time high of over two-thirds. The figures for young people are around 75 per cent. For the children we have started to incarcerate, that rises to over 80 per cent. That represents a failure we cannot ignore.
	Of course prison has its place in the arsenal of disposals available to the courts, but emphatically not under current conditions which, it is generally agreed, only erode standards and promote reoffending. Prison is needed to protect us from dangerous, violent, prolific and repeat offenders. In acceptable conditions, and with the time to work with them, prisoners can be rehabilitated in prison. I have great respect for the excellent work of prison staff when they are allowed to do their job properly, which is impossible for so many today. I declare an interest as vice-president of the Butler Trust, which I started and has been recognising excellence in prisons for the past 20 years.
	What is the cost? The Social Exclusion Unit has estimated that the cost to the country of current reoffending is at least £11 billion. The Government have promised 8,000 more prison places to meet this crisis, which will take several years to bring on stream, by which time that, too, will be inadequate. Building the promised new prisons will cost the country£1.5 billion, and each place around £100,000. This is a huge price to pay when building more and more prisons does not and cannot solve the problem. It is merely a race after failure.
	Apart from this sample of the financial cost, what are the soft indicators of social and emotional cost? Above all, the cost to victims can be huge: the disruption to jobs, family life and the sense of security which we all regard as a basic requirement for a full and happy life are put at risk, sometimes for a long time. There is the consequent demand on our public services, the voluntary sector and all who help and support such victims. Ironically, that cost is mirrored in the offenders' lives and families, who are also part of the community and are almost always victimsas well. Broken families and relationships, and lost jobs and housing are so often the outcome of imprisonment, yet they are the very things on which going straight depends. We further disable people with this form of punishment which in turn creates the very conditions for the ever-increasing reoffending rates.
	Finally, we are creating a far bigger, long-term problem for ourselves. The children of today who lose a parent to prison, of which there are at any one time around 150,000, are significantly more likely to become ensnared in the criminal justice system themselves. I declare an interest as the patron of Action for Prisoners' Families, which supports these additional victims of crime. One 16 year-old girl's comment on her mother's imprisonment prison gives a tiny insight:
	"Coming home won't be too good. Prison does a lot to your brain, because it's hard. It's hard for the family to readjust. Mum needs support because the family has grown different. Mum still thinks I'm 13".
	How much more will it take before it is understood that our prison policy is failing our communities?
	I heard the Home Secretary earlier this week robustly defending his position, saying that his first priority is the development of more prison places because that is what the public wants. He is wrong. There have been several polls of public attitudes in the recent past showing that the British public is not as pro-prison as is commonly supposed, or as the tabloids would have us believe. I declare an interest as chair of Rethinking Crime & Punishment, which commissioned a number of MORI polls on public attitudes in 2001-03, showing a strong preference for prevention as the way to reduce crime—better parenting, more police, better discipline in schools—and only 8 per cent thought that more imprisonment would achieve this. When asked how they would spend a mere £10 million on dealing with crime, only 2 per cent would build more prisons. Rehabilitation was the most favoured objective of sentencing, coupled with strategies to reduce reoffending and community punishments. Another, recently published, survey of attitudes of victims showed that 62 per cent did not believe that prison prevented reoffending, and over 80 per cent favoured more constructive activities, better supervision for non-violent offenders and more treatment programmes.
	Where has the discussion been on alternatives, not to punishment but to custody? It has been almost invisible. Community service was first introduced in the 1970s. I saw it at first hand in those early days, when I was involved in starting the first visitors' centre for prisoners' families at Pentonville prison and we had the first women on community service. They came and helped us look after the families and visitors of prisoners, a very salutary experience for girls who could have been on the other side of the high wall themselves. I learned then the real value of that sort of work, because it was constructive, reparative and important lessons were learned. That is surely the sort of punishment worth giving.
	There seems to have been a symbolic shift in the very language—an important thing—used to describe that sort of penalty. It has changed from "community service" to "community punishment" to "unpaid work", thus progressively losing the essentially positive and constructive ethos of the process which, within the community, ensures that people do not reoffend. About eight million hours of unpaid work are served every year. It is one of the Home Office's best kept secrets. It is done on a shoestring, almost invisibly, but with huge potential if properly resourced and developed.
	I am not aware of any process like the razzmatazz that accompanied the promotion of ASBOs when they came on stream, with road shows, videos and acclaim for those areas espousing their use. On the contrary, significant new funding for this work, an absolutely necessity to deliver the enormous expansion of alternatives if fewer offenders are to go into custody, has simply not been forthcoming. Yet nobody seems to have blinked at the prospect of £1.5 billion being spent on new prisons.
	What a difference it could make if that funding—even just a small proportion of it—could be redirected immediately. It would mean investing in a strategy that can serve the purposes of sentencing and society so very much better for the great majority of offenders because it offers the possibilities not only of paying back to the community they come from but also of focusing on the causes of the offending, which include substance abuse, mental illness, learning disabilities and basic education. In particular, investment in the provision of secure places in drug rehabilitation units and mental health units could transform the outcomes for society and offenders.
	Much has been said about the lack of confidence in community penalties, despite the fact that the overall reoffending rate is significantly less: 53 per cent compared with the average of 67 per cent after custody. Community penalties are a great deal cheaper and do not entail the rupturing of lives in the way that custody does. Instead, the perception of community penalties not being tough enough, with people being described in the tabloids as "walking free" when they are imposed, has been allowed to grow. How wrong that is! Provision is indeed patchy and far from perfect, but it is hardly surprising that there is little confidence amongst sentencers or community members if very little is known about what community penalties consist of.
	In the Thames Valley, Rethinking Crime & Punishment is trying to improve levels of understanding about what is going on and engagement in the community and among sentencers. Our work has brought judges and magistrates together with providers of the projects and with the "users" to see and hear about their experiences on community punishments. The outcome has been a transformation in the perceptions of sentencers as they realise the robustness and rigour of the programmes, which have greatly impressed them and provided insight and reassurance. We need much more of that.
	In essence, this debate is about the nature and place of punishment. If punishment is inappropriate, negative and simply retributive, no one's interests are served; indeed, we are all damaged. Today, we are haunted by the issue of toughness, which seems to be associated with unpleasantness and fear. Most of us want to see crime reduced and, even more, we want criminals not to offend again. We have seen by the catastrophic situation we are in today that unpleasantness and fear do not achieve our ends, but quite the reverse. There are robust alternatives out there—one can say that they are tough—but we need a seismic shift in our priorities. I just hope and pray that the Government have the will and the courage to bring such a shift about. I beg to move for Papers.

Lord Rosser: My Lords, I congratulate the noble Baroness, Lady Linklater of Butterstone, on securing this important debate. I declare my interests as recorded in the Register, which include being a member of the Prison Service and National Offender Management Service boards and audit committees and being a lay magistrate.
	Resources directed to reducing reoffending—and there are some indicators of falls in reoffending—have to be shown to be delivering objectives to a degree that represents value for money compared with other potential uses of the same money. When it comes to the prevention of crime, there are differing views on how the resources available can best be spent. Some argue that the most effective deterrent to committing crime is the likelihood of being caught and that available additional resources should be directed at the police and at crime detection measures. Others argue that resources should be directed at preventing young people, in particular, starting down the road of crime in the first place. Yet others argue that those resources should be directed at reducing reoffending among those who have already been convicted of crime. Once again, it is crucial that money spent in this area can be shown to be delivering in respect of those who are sentenced to terms of imprisonment and those who receive community sentences.
	Most people would no doubt say that more money should be spent on measures to reduce reoffending, just as they might also say that more money should be spent on further improving healthcare, education and public transport and on increasing police numbers. The desire to see more resources allocated is not often matched by a desire to see levels of taxation rise to provide for them, which means that an argument for more resources needs to be based on a case that money spent today stands a credible prospect of producing savings within a defined timespan.
	There are programmes and projects associated with community sentences that are designed to reduce the likelihood of reoffending and to rehabilitate the offender. There are also programmes and courses for those serving a sentence in prison designed to address the causes of offending; and courses to improve basic skills to enhance the prospects of securing employment and thus a source of income, or to enable prisoners to continue with some form of training or educational course on release. Help is also given in seeking to have accommodation available for a prisoner to go to on leaving prison.
	With the advent of the National Offender Management Service, it is expected that co-ordination between the different organisations and agencies, whether public, private, or voluntary, that may be involved in dealing with offenders inside prison and in the community will be developed and strengthened. However, bearing in mind that resources will be tight in the immediate future, at least, it is imperative that full and reliable information is available on what programmes and courses give the best return in respect of reoffending and of on which kind of offenders such programmes are likely to have the greatest impact. We also need to be clear, based on hard evidence, about the levels and kinds of support and supervision for offenders in the community that have the greatest impact on reducing reoffending.
	I am aware that some statistics are available; for example, there are the results of pilot exercises. However, at the moment, for one reason or another—in some cases because it is too early to be able to evaluate the impact on reoffending of a programme or course—we have too little hard evidence to be certain about what works most effectively and what has the least impact on reoffending in respect of each area of activity and support. That information is crucial if the case is to be made for further resources to be directed at addressing reoffending on the argument that reducing reoffending will save financial and social costs at a time when resources are limited and the demands for them are numerous and widespread.
	There is also a further issue. Points are made about the size of our prison population in relation to that of other countries. If the argument is that community sentences in a number of cases where prison sentences are being given represent a better alternative in terms of protection of the public and in reducing the likelihood of further offending by the defendant, then sentencers, and those who lay down guidelines for sentencers, have to be persuaded of the argument as well. That brings us back to the issue of the quality and completeness of information about the impact, in terms of protecting the public and reducing the likelihood of further offending, of community sentences rather than prison sentences in those cases where a prison sentence is not inevitable.
	Sentencers are much more likely to have confidence in community sentences if hard evidence is there to show that, in cases where prison is not inevitable, a community sentence is likely to be at least as effective, if not more so, in achieving the objectives that sentencers wish. That hard evidence of effectiveness also has to be produced if large sections of the public are also to be persuaded that community sentences work and that they are not tantamount—as certain sections of the media portray—to a soft option or getting off.
	I appreciate that much has been done by the Probation Service, in particular, and others to get across what a community sentence can actually involve for the offender, but more needs to be done in this area. Reducing reoffending represents an enormous prize financially, in reducing the cost of crime, and socially, in improving the quality of life of offenders and of communities who suffer from the effects of high levels of crime. Like everyone else, I want to see that goal achieved, as well as the reduction in the prison population that should follow, but it will not happen unless we have solid and reliable hard evidence available to enable us to concentrate limited financial resources on those specific programmes, activities and support activities that have a proven track record of delivering reductions in reoffending rates.

Lord Elton: My Lords, I thank the noble Baroness for obtaining this opportunity and for making most of the points I had intended to make in my speech. That is also a matter for congratulation because she has such wide involvement in this area that almost any source one goes to has her fingerprints on it somewhere.
	I am one of the few people in this country who have considerable sympathy for the Home Secretary at the moment, and I have more sympathy for the Minister with responsibility for prisons. In 1982, I was that Minister, and I found that I had inherited a prisons estate in which not one brick had been put on another in any adult secure accommodation since the reign of Queen Victoria. I had a chart in my office which showed the point at which I would have to advise the Secretary of State—Willie Whitelaw in those days—to take immediate action to secure executive release. On several occasions we got to within 11 places of that release, although we were using the bridewells, the police cells, and I am not sure that we did not use one or two prison vans.
	Of course my first advice was to spend a lot of money on building new prisons. That was put in train. I similarly advised Leon Brittan—now the noble Lord, Lord Brittan—in the next Administration, and that was put in train. We are back there. It has not worked. So it seems to me that there is considerable intellectual force in the idea that what we are doing is wrong and that we should do something different.
	There are some simple things we can tinker with in the system. I have always thought that the proportion of prisoners on remand was absurd. They are the most expensive prisoners to keep, they have more privileges than anybody else, they require more looking after, and they take staff attention away from the sentenced prisoners who should be in rehabilitative training. The Government might look through the minor offences, which are triable both ways, to see whether some of the thresholds cannot be raised to reduce the number of people remanded on their own request for trial by jury on the off-chance of getting off some sentence which they would otherwise cop. That would have an effect on the numbers. The typical thing when I last looked at that was handling goods below a certain value.
	Restorative justice, which has already been mentioned, is a fruitful way of reducing crime. I back up what the noble Baroness said about the Rethinking Crime & Punishment initiative that took place in the Thames Valley. That was directed only at, I suspect, Crown Court judges. All sentencers should be included. When I was chairman of the Intermediate Treatment Fund—set up by a previous Administration in a moment of great enlightenment—one of its functions was to bring together the sort of meetings now being arranged under local area agreements and local strategic partnerships. That function should be extended.
	There are so many prisoners and so many convicts that it is tempting to think of them as statistics—as a sort of muddy river flowing from some distant source through our prisons, whirling and re-circling in there for a long time and then drifting out into an obscure delta into society. That is not a bad analogy if you trace the river to its head-waters, to places like the north Kensington estates, where it is miraculous that anybody finishes up not involved in crime, because it is one of the few ways of securing your own safety in a gang culture. I refer the Minister—and ask him to pass the recommendation on to his friends concerned with social services as well as with the Prison Service—to a publication by the Centre for Young Policy Studies called No Man's Land, written by an independent worker called Shaun Bailey, which gives an absolutely crystal-clear analysis of what was going on on his particular estate and the way that every factor reinforces every other factor. He had a very strong-willed, independent, single mother who was determined that he should break out of this. He was fortunate to go into the Army Cadet Force, which may sound strange, but there a colonel gave him a lot of support that a father would have done. He has seen what is happening to his community and is doing something effective about it. I cannot in six minutes expand on this, but the lesson that it drives home to me is that we are not dealing with statistics, but with individuals, and individuals can be dealt with only by individuals who know and love them. Most young children have gone wrong because they have lacked love. The child of a teenaged schoolgirl mother, who was herself the child of a teenaged schoolgirl mother, inherits no knowledge of parenting. It has to be taught, and it cannot be done by an institution.
	In my final 30 seconds I beg the Government to look at the voluntary sector and to vitalise it with money and not regulation, and to pass the same message to local authorities. It is the dedicated individuals who are prepared to give their lives and time because they care for these children who turn that muddy stream away from the prisons and clarify it and purify the whole of our society over the years.

The Lord Bishop of Chester: My Lords, I join in congratulating the noble Baroness on securing this debate and on the splendid speech with which she introduced it. I have a few comments on this very complex area from, what I hope at least is, a Christian perspective.
	First, the exercise of justice, sentencing and punishment, reflects a judgment on events, in terms of determining a difference between right and wrong. We should never forget that. The Prime Minister said that he wanted to be tough on crime and tough on the causes of crime. Providing that the emphasis is on both sides of that statement, it seems to me to be entirely right. We need to avoid any dewy eyed innocence about how our society is or any society will be. I think it was DK Chesterton who said that original sin was the only Christian doctrine which had been empirically demonstrated.
	Justice is a serious matter. We may have abolished the death penalty, and rightly so in my view, but all that we do is avoid any de facto return to it, because if justice breaks down you end up with armed patrols or vigilante action. The exercise of justice and judgment in our society is a point at which the dignity of our society is most emphasised.
	One of the problems is that we have developed over the years, and particularly in the past 20 years, an underclass which has become very stubbornly ingrained with crime. When you are in that underclass, intersecting with the justice system can in its own bizarre way be seen to almost confer a certain dignity on those who are offenders. We had a debate recently in the House on ASBOs and on a report which said that in some sections of our young people an ASBO is almost a badge of honour. Recognising that is simply recognising the dynamics of having an underclass in our society, and the wrong response would be to rack up the punishments. That will add to the problems rather than take them away.
	Secondly, sentencing pronounces a judgment on events which is, in a sense, a determination of what I would call "the wisdom for the future"—the best for both the offender and society taken together. A great deal derives from the Criminal Justice Act 2003. I wonder whether there was some tension in that very good Act between the establishment of automatic or minimum sentences and the rebasing of community punishment orders with all the different options available. It seems to me you only really match up those two if you recognise that judges should have a proper discretion in the exercise of judgment.
	One thing I have noticed—this has been confirmed by talking to judges who I know well—is that they often feel these days that their discretion is more limited, partly because of the public pressures which have been brought to bear. That can have a bad effect on minorities in our society. I take, for example, the way women have been affected in the criminal justice system in recent years. I rely here on an excellent publication by the Roman Catholic bishops of England and Wales a couple of years ago calledA Place of Redemption. In 2003, more women were sent to prison for shoplifting than for any other crime. Many women are in prison because of financial problems and there is a higher level of mental disorder among women compared with men in prison. In 1991, 8 per cent of women convicted of motoring crimes went to prison; in 2001 it was up to 40 per cent.
	Those are astonishing figures. The effect on families and children of sending women to prison can be devastating. I am told that only 5 per cent of children of women who go to prison can remain in the home in which they have been until their mother went to prison. In any given year, about 18,000 children are separated from their mother because their mother is given a custodial sentence. It seems at least worth asking whether a proper emphasis on the equality of the sexes in our age has not led to a false interchangeability, as it were, in how they have been treated by the justice system.
	That point was made in a memorable lecture by the noble and learned Baroness, Lady Hale, our only female Lord Justice of Appeal, last year. Only giving judges proper discretion and trusting their wisdom will enable some of the more subtle points in exercise of that judgment to come through. In Christian terms, justice must always be tempered by mercy. Only when you put justice and mercy together do you get a wise exercise of judgment.
	In that connection, we should resist giving in too much to a victim culture. I am all for proper support of victims in all sorts of ways, but the views of victims should not be allowed to distort the exercise of justice in our society. We have been creeping in that direction, which is almost going back to a retaliatory view of the exercise of justice. It was Gregory the Great, a Pope 1,500 years ago, who said that God visits unruly societies with harsh Governments. We have become a more unruly society. In 1940, the prison population was 10,000. Today it is 80,000. One way or another, we have become a more unruly society and the tendency then is for more harsh government. To some extent, that is unavoidable because of the dynamics, but it must be fought lest we give in to improper popular pressures.
	We must recognise the existence of the underclass and in everything we do seek to ameliorate that great change in our society in the past 25 years.

Lord Warner: My Lords, I, too, pay tribute to the noble Baroness, Lady Linklater, not only for this debate but because of all the work she has done on offending and its prevention. Today's debate provides me with an opportunity to revisit criminal justice territory after my purdah period as a Health Minister. As someone who has worked closely with a former Home Secretary as his policy adviser and set up and chaired the Youth Justice Board for five years, I probably have more sympathy for Home Secretaries than many speakers today.
	I want to draw on the experience I had at the Youth Justice Board and try to apply some of its approaches more widely. I shall start with where I left the board in 2003. It had multi-agency youth offending teams, strong and growing prevention programmes and restorative justice, which I strongly support and to which the noble Lord, Lord Hylton, drew our attention. It had tough supervised community sentences. I make no bones about saying that we wanted tough community sentences: it was the right thing to do. They were being accepted by the courts as an alternative to custody. In 2003, when I left, we had a falling custodial juvenile population. This had been achieved not by listening to some of the vested interests in the criminal justice system and allowing the Probation Service to monopolise the management of youth offending teams. We were imposing increasingly demanding contracts on the Prison Service; we were seeking a wider range of service providers than the usual suspects; and we were doing something which had been discouraged by the Home Office and the then Lord Chancellor's Department by working closely with sentencers. We were engaging with them and doing dangerous things such as talking to them and publishing information about their sentencing patterns. This was not the traditional approach which criminal justice had favoured. I was sorry to see my successor at the Youth Justice Board leave his post recently, but I was equally sorry to see that the trajectory on juvenile custodial use had gone in the opposite direction from that which I had left.
	I cite perhaps immodestly what worked for juveniles, because it has wider lessons for us. I tried unsuccessfully to get people interested in applying the approaches in that system, mutatis mutandis, to women and other adult young offenders. Those approaches could be applied to a much wider group of offenders. However, it would mean radically changing the established processes of working through the probation and the prison services. It would certainly mean fully implementing the recommendations in the report by the noble Lord, Lord Carter of Coles, imposing a real purchaser-provider split, and demanding contracts for those providing custodial and community programmes. We sometimes take a rather rose-tinted view of some of those programmes which have been applied over the years by the Probation Service and the Prison Service. A more rigorous system of contestability would be needed to produce more credible community penalties which would reverse sentencers' propensity to use custody, as the noble Baroness, Lady Linklater, rightly identified. In the short term, we need to focus on credible alternatives to custody for remands, foreign prisoners, women and elderly prisoners. One of the more surprising features of my time in the Home Office was a proposal for geriatric wards in some prisons. This did not seem to be necessarily the right way forward.
	This model of a mixed economy of service providers has been applied to social care; it is being applied in health and education; and its rapid extension would benefit prison and probation services. To produce a real change in the pattern of offending and reoffending, we may need a new concordat with sentencers, possibly in relation to the 2003 Act, and an even heftier dose of robust commissioning and provider contestability in sentence disposals. As a number of noble Lords have said, we need to increase the involvement of local government and social enterprise, as well as of the private and voluntary sectors, in service provision for offenders. Doing this more at arm's length from the Home Office, as we did in the Youth Justice Board, would achieve more local ownership of problems and solutions—it might even improve the lifestyles of Home Secretaries.
	We are moving into a period when growth in public expenditure seems likely to slow down, and public service efficiency has to improve more rapidly. Criminal justice cannot exempt itself from that environment. Doing more of the same is likely to be not only unworkable, but unaffordable.

Baroness Thomas of Winchester: My Lords, I, too, add my thanks to my noble friend Lady Linklaterfor the way in which she introduced this important debate this afternoon. I am not going to talk about alternatives to custody so much as alternative custody and about a prison that all those in the criminal justice field will know but few others will. I refer to Grendon Underwood, near Aylesbury, which is run as a therapeutic community.
	Grendon fits into this debate because there is clear evidence showing that its regime contributes to a lower rate of reoffending, although that is not an easy calculation as prisoners as a whole go back into the prison system after spending varying lengths of time there. It was founded 47 years ago, when the prison population as a whole was 30,000. It is a category B prison and has 230 male prisoners serving medium or long sentences for serious offences. They are all volunteers from other prisons, and about half could be classified as psychopaths, some having a dangerous and severe personality disorder. Before being admitted, they have to be assessed for at least two months to see if they are suitable for the therapeutic regime. Many have above-average intelligence, but all must be prepared to talk about their behaviour and why they committed their particular crime.
	The wing communities are run along democratic lines with elected prisoners, supervised by staff, leading group therapy sessions and challenging one another about their past. There is no one-to-one therapy. The inmates' toughest critics are each other. It has been said that they are able to challenge and ferret out evasions and dissembling with a tenacity and vigour that far surpasses what the therapists can muster. In particular, they are not impressed with an inmate simply saying that they are sorry for what they did. They have to demonstrate real penitence and an awareness of exactly what they have done—to their victims, victims' families, and their own families—to satisfy their peer group. As Anne Owers, says in her latest, very favourable, report:
	"Often for the first time, prisoners will be made to confront the true hideousness of their crimes—over half Grendon's prisoners are murderers".
	Psychodrama has a place, with inmates playing all the necessary parts. When a particular inmate's crime is the subject of the drama, he has not only to re-enact the crime, but to become the victim. No wonder the phrase was used again and again that Grendon is not a soft option. "It's the hardest thing I've ever had to do", is a familiar comment. My noble friend Lady Linklater and I visited Grendon two months ago, and were impressed by the culture of respect between prison staff and inmates—first names are always used—and the calm and purposeful atmosphere pervading the particular wing we were taken to. One inmate said to us, "Opening yourself up is like falling off a cliff but at Grendon you are caught and held".
	It is now well established that reconviction is related to length of stay at Grendon. By calculating reconviction rates adjusted for initial risk and mode of leaving, it has been estimated that a stay of at the very least 18 months and preferably two years at Grendon might produce a reduction in reconviction rates of about one-quarter. Of Grendon men serving life sentences, 8 per cent were reconvicted in four years, which is one-third of the rate that wouldbe expected on the basis of their criminological characteristics, and is statistically significant.
	The more one hears about Grendon the more one wonders why there are not more dedicated therapeutic prisons in this country. In view of the fact that it is now well understood that society must address urgently, the whole question of reoffending by those suffering from severe personality disorders, it seems incredible that there has been a serious erosion of funds to a place as valuable in this endeavour as Grendon. There is now a serious shortage of suitably qualified staff, and cuts have had to be made in the provision of therapeutic services to inmates. Why is it that Grendon, despite providing an excellent service under such rigorous financial constraints, is not able to access any NHS funding to help with staff costs, despite the cost savings to the Treasury of a cut in the rate of reoffending? The funding allowance for Grendon prisoners is about £38,000 per annum. In Rampton and Broadmoor, the allowance exceeds £190,000.
	I end by quoting two sentences from the IMB report:
	"The Board fears that continued general underfunding at this level plus ever-tightening financial constraints of the type experienced this year will inevitably lead to a major dilution in the quality of therapy at Grendon. The Board recommends that the Minister should review the level of funding that HMP Grendon receives".
	I say, "Amen" to that.

Lord Dear: My Lords, I join others in paying tribute to the noble Baroness, Lady Linklater, for sponsoring this debate and for the tour d'horizon that she gave in her opening remarks. As I am batting rather late in the batting order of this team, it leaves me with not a great deal to say.
	I shall focus on what I consider are the five main non-custodial avenues open to the courts: monetary fine, which has not yet been mentioned; tagging, which I do not think has yet been mentioned; anti-social behaviour orders; community orders; and probation orders. I gloss over volunteer mentoring and restorative justice, not because they are unimportant and not because, as the noble Lord, Lord Hylton, said, those issues and others do not hold out promise for the future, but simply because time is against it in a debate of this length.
	All those five avenues fail in one way or another not because the concept is wrong and not because the aims are outmoded or irrelevant but because in each and every one of them the approaches are no longer accorded sufficient priority—not enough effort, money, staff, emphasis or co-ordination. Tagging is a case in point. The concept has not changed in a decade or so—the decade that we have used it—and neither has the technology. It can operate only within the offender's own home, close to a telephone system. Typically, the offender is required to be at home, virtually imprisoned, for about 12 hours of the evening and night, and can roam free during the day without any check on where he goes being possible. The result is virtual imprisonment at home for long periods and non-supervision for the rest of the time, with all the opportunities that offers for reoffending. At just over £2,000 a time, for some offenders tagging is cost-effective and successful, but mostly it is a crude tool. Technology has moved on. I declare an interest as chairman of a company—one of many companies—that manufactures equipment that could be used in this field. Technology can now track individuals anywhere, pinpointing their whereabouts to as short a distance as three metres, and can be linked to an individual computer programme tailored to the offender that will cover the full 24 hours anywhere, giving both the rigour of tight supervision and flexibility. It would be a huge improvement on what we have today at virtually the same cost.
	Magistrates have largely given up imposing fines as a realistic penalty because they expect that the fine will be unpaid and eventually written off. This was not always the case. Courts administrators no longer see this as part of their core business and cynical non-payment is all too often the result. But firm determination can rectify that position. Merseyside is as an example of this. Non-payment of fines was the norm in Liverpool. It was a bad joke. Only 12 per cent of warrants for non-payment of fines were executed, the other 87 per cent went unexecuted and therefore unpaid. In 2002, the warrant enforcement function in Merseyside was outsourced to a large private security company and within three years 71 per cent of the warrants for non-payment were being executed and the fines paid. That percentage grew rapidly; it was a success story. For reasons that are not altogether clear, the Department for Constitutional Affairs decided to take the warrant enforcement function back in-house. I understand that the percentage of executed warrants in Merseyside has begun toslide remorselessly back towards the pitiful level that was seen originally. The message is simple; proper outsourcing to competent, commercial concerns can bring debt recovery under proper control and once again offer the fine as a realistic option.
	What of ASBOs, community orders, probation orders and the like? They are all different, but they all have one essential set of ingredients. They all require a proper degree of supervision and management, and appropriate staff trained to an appropriate level and in appropriate numbers. All those orders have been largely devalued in recent years, to a point where they are often seen by the offender as a minor irritation.
	On some community programmes, recidivism runs as high as 90 per cent. The reoffending rate for males on probation, for other than the most serious offences, is around 60 per cent. All too often, the ASBO or the community order is seen as a badge of honour. The fast reducing impact of the Probation Service in implementation across the range is alarming. The diversion of its resources into management functions is pitiful. In 2000, approximately 70 civil servants made policy for the Probation Service. In three years, by 2003, that number had risen to 500 or so in the probation directorate. Now the figures are blurred, with the creation of the National Offender Management Service, which has seen a staggering increase of 1,600 new posts created for probation and prison matters, on top of the staff who were already in post. All the time, the service at the sharp end diminishes. The average offender on probation receives only an hour a week at most face to face with his probation officer. Yet, when resources were adequate and locally directed, the Probation Service in this country was an exemplar for the rest of the world to follow, and we were proud of it, and reoffending was minimal.
	A challenging vicious circle has developed, in which the collapse of the fine as a penalty has raised the sentencing threshold so that offenders who would have been fined are now sentenced to supervision or community orders, and those who a decade ago would have received a community sentence now serve custodial sentences. It is no surprise, therefore, that prisons are full to capacity, and we have to find a way back. There is nothing wrong with the range of options in the courts at present; nothing that proper resourcing and close, local attention to communities—I echo the words of the noble Lord, Lord Ramsbotham—cannot solve. Without it, and with a continued growth in bureaucracy and in criminal justice legislation, we can expect to see a further degradation of our already damaged system and further challenges to our high reoffending rates.

Lord Taverne: My Lords, I agree with every word of the excellent speech made by my noble friend Lady Linklater. I wish to speak about prisons and drug addiction, and I declare an interest as the chairman of Alcohol and Drug Addiction Prevention and Treatment (ADAPT), a charity that runs two major clinics that provide residential care for addicts. I want to draw the attention of the House to how pressure on prison places has been made worse by an extraordinary failure of government policy in the treatment of drug addicts.
	A few years ago, the Government rightly recognised that the best hope of curing addicts was in residential care, and they made more money available, but the way in which that was done has, perversely, led to a decline in the use of residential treatment. First, the money provided was not ring-fenced, and it was used by local authorities and other fund-holding bodies for other purposes. Secondly, drug action teams (DATs) were given targets which they found in practice they could meet most easily and cheaply by maintaining addicts on methadone or by sending them on community programmes that had severe limitations in meeting the needs of those referred. The Home Office, rather late in the day, is now urging DATs and other bodies to send addicts to residential treatment, but referrals are only slowly beginning to recover. The result of this mess is that in some units occupancy rates of residential places fell to less than 40 per cent, which makes them wholly uneconomic.
	In a recent answer to my noble friend Lord Avebury, it was denied that there was widespread disinvestment in residential places. That is neither our experience nor that of other charities which offer residential places. Our view has been confirmed by EATA, the representative body for drug addiction charities.
	What does this mean? Fewer addicts are cured and the pressure on prisons resulting from drug-related offences, which, as the noble Baroness, Lady Massey, pointed out, probably constitute the majority of crimes, has increased. Ironically, at the same time, the National Treatment Agency offered grants from a£54 million allocation for new residential services. That is called joined-up government.
	Last October, I asked to see the Home Secretary urgently to discuss a proposal that would reduce the pressure on prison places and ease the financial difficulties of charities providing residential care. It would also save some public money. ADAPT proposed that we should provide some 60 to 70 beds in our clinics for 10- to 12-week courses for early prison discharges and as an alternative to custody. We have considerable experience in this field and our work with addicts was praised by Charles Clarke when he visited one of our clinics about a year ago. We pioneered the bail assessment scheme in the 1990s, which offered drug treatment before sentencing and worked very well. It kept a substantial number of people out of prison and off drugs, until the scheme was abolished in 1996, as a result of Michael Howard's cuts. We worked with all categories of offenders, including murderers and sex offenders. The scheme that we proposed could have been extended to other residential clinics with similar experience, and we reckon that, over a year, it could save perhaps 1,000 prison places.
	I asked to see John Reid because only the Home Secretary could have got such a scheme moving quickly. I had no response. About 14 days ago, after several telephone calls, I was finally told that, by coincidence, a reply from a junior Minister was on its way that day. That was nearly three months after my urgent approach to the Home Secretary. When I was a junior Minister in the Home Office in the mid-1960s, when the Home Office's reputation was somewhat higher than today—and I am sure that this would have been the view also of the noble Lord, Lord Elton—neither Roy Jenkins nor I would have treated a serious and important proposal by a formerHome Office Minister with such disdain and discourtesy.
	The reply I finally received was feeble. It told me, as if we did not know, about,
	"the relapsing nature of drug addiction",
	and said that very few prisoners could be assessed as suitable for diversion to the non-secure accommodation available. With respect, this is arrant nonsense. Of course, some people undergoing treatment do not complete their course, but the relapse rate on our courses is far lower than that of prisoners released directly into the community.
	I have talked to prisoners undergoing rehabilitation courses in prison who are desperate to keep off drugs and who would love to go to a residential treatment centre after completion of their prison course. They know that when they return to their cells at the end of their treatment, the drug barons will have left drugs there to get them back on the habit. On release, most prisoners go back to their own localities, where the dealers are waiting for them.
	Does the Home Office really believe that very few of the 80,000 now in jail could safely be diverted to non-secure accommodation? That ignores the experience of residential treatment centres. Offenders undergoing treatment in our residential clinics do not present significant management problems, and the impact on our local communities is minimal. We deal with people under all forms of regulatory orders, such as home detention curfews, drug rehabilitation requirements and the whole range of licences, and, as I said, our patients cover the whole spectrum of criminal offences.
	The success of the former bail assessment scheme is highly relevant. Indeed, there is no reason why that scheme should not be reinstated. If the Home Office is concerned about the risk of non-secure residential treatment, surely a good chance of successful treatment getting offenders off drugs is a much better bet than the high risk of offenders becoming more heavily addicted while in prison.
	The negative, offhand treatment of our proposals is not only depressing but scandalous. More residential places will be closed; more addicts will commit crimes; more will go to jail for drug-related offences; and our record will be confirmed as the country with the highest prison population, some of the worst prison conditions and one of the highest drug addiction rates in the European Union.

Viscount Tenby: My Lords, I welcome today's debate, initiated so ably by the noble Baroness, Lady Linklater, as the subject lies at the heart of the problems currently affecting the British penal system. I begin by declaring an interest as a magistrate for 27 years, now on the supplementary list.
	I shall try to keep my use of statistics to a minimum this afternoon, not only because others far more qualified than me have already used very telling ones—always one of the problems of being a tail-end Charlie—but also because this is an area in which statistics abound. Some are precise but, with others, statisticians themselves admit that more needs to be done to achieve absolute certainty about the facts. There are also many complexities and many variables, so that even a comparison between the percentage of reoffenders following a custodial sentence or a community sentence seems to indicate that there is a variable of only about 10 to 15 per cent between the two categories, which is unwelcome news and not enough to satisfy the proponents of each argument.
	We are currently giving custodial sentences to about 25,000 more people than we were nine years ago. That is a drab, inescapable fact. By any standards, it isa remarkable increase, and an unsustainable one,given the present level of funding for the PrisonService.
	One of the core beliefs in public life, not always accepted by politicians, is that you cannot remove or solve problems by throwing money at them. Recent experience in both the education service and the NHS gives credibility to that view. But I suggest thatthere is an exception to this rule: the Prison Service. More accommodation, better staffing levels, proper education and training facilities for those inside—all those factors, and more—can help in the fight against reoffending.
	Of course, that is only half the story. Let us imagine what could be done if we funded sensibly services that keep people out of prison. Is it worth it? Put cynically, I suppose it is fair to say that there will be few votes in it, but making a big dent in the £11 billion annual estimated cost of reoffending would seem to be a worthwhile enterprise, to put it mildly. At present, according to the Prison Service,
	"providing work for prisoners is not currently a central and essential part of the prisons regime".
	It is calculated that about 10,000 prisoners are employed in 300 workshops in the prison estate, with workshops run by charities accounting for some 1,000 more prisoners in 75 prisons. There is not much training there then, I suggest, against a total prison population of 80,000.
	What chance is there for meaningful education with an understaffed service and a total prison population of 80,000 of which, as the noble Lord, Lord Corbett, said earlier, it has been estimated that 50,000 are serving a sentence of less than six months? Add to that the prevalence of "churning" within the prison population, an inevitable evil in the never-ending struggle to find places, and meaningful educational progress becomes just a pious hope. The upshot is all too predictable, as the Social Exclusion Unit found. Prisoners not taking part in education or training are three times more likely to reoffend.
	It must never be forgotten that many of these prisoners enter the system with an unenviable failure list, such as a lack of literacy and numeracy skills, drug and alcohol dependence and an absence of any kind of normal family life. In all probability, they have been unemployed and, in some instances, may be unemployable. In all these areas, prison could, indeed should, be helping, but offenders are instead turned out, for the most part, as they came in. In some instances, they are even worse off. On the other hand, if they stay in society, properly and intelligently managed and supervised within an appropriate community sentence, the chance of recidivism recedes.
	A few years ago, I had the privilege of organising a visit with other noble Lords to the Medway Secure Training Centre, then in its infancy, which had been reported as experiencing staffing problems and other assorted hiccups. In fact, I was agreeably impressed by the commitment and genuine enthusiasm of the staff for a full and varied education programme for the young men. However, at the end of the visit, one took me to one side and expressed his dismay that, once the inmates had gone off site and been released into their local areas, there was no effective follow-up and all the good work was wasted.
	As I say, that was some years ago. I hope and pray that matters have changed fundamentally in the intervening years. Certainly, the creation of the National Offender Management Service should, in theory, put an end to such dysfunction in the system, with its concept of end-to-end management. Yet the creation of a large new bureaucratic empire—with, as we have been told, 1,600 new jobs in NOMS alone, for example—and the emphasis on regional management set alarm bells ringing in my ears. I share the scepticism of my noble friend Lord Ramsbotham. How will such management liaise effectively with local authorities and, even more importantly, local communities and local charities? In the north-east and on Merseyside, for example, they have made valiant strides in combating the dangers of reoffending. Again, how will morale within the Probation Service stand up to tampering with probation boards?
	These are all crucial questions, which must be answered in the fight against reoffending. It is a fight which we, as a society, cannot afford to lose. To combat it, we must certainly employ fresh and practical initiatives, but we must also surely learn once again to do common-sense things well as part of a communal, joined-up effort across the whole country.

Lord Dholakia: My Lords, the events of the past few days have clearly demonstrated an uneasy relationship between the Home Secretary and the judiciary. Like it or not, it cannot be good for our criminal justice system.
	There are two elements at the root of the present prisons crisis. More than 3,000 new criminal offences have been created since the Government came to power—almost one for each working day—and there is the more punitive treatment of offenders by the judges than ever before. The Home Secretary has now seen the light of day, and is recommending more use of alternatives to custody, and I shall concentrate on that. In doing so, I pay tribute to the noble Lord, Lord Warner, former chairman of the Youth Justice Board, and to Rod Morgan who followed him, for showing how positive measures can effectively help in diverting young people away from the criminal justice process.
	An important contributory factor to the overall crime rate is reoffending by released prisoners: 66 per cent of prisoners are reconvicted within two years of release. However, there is something much deeper than that: it is estimated that ex-prisoners commit around 1 million crimes every year in England and Wales, which account for 18 per cent of all offences. Therefore, if we could make a significant impact on reoffending rates, that could, in turn, make a significant dent in the overall crime rate.
	However, it is very difficult for prisons to reduce reoffending when they are overstretched and overcrowded—a point made by the noble Lord, Lord Ramsbotham. During the past 10 years, the prison population has resembled a fast-moving escalator. The overall number of prisoners rose by 41 per cent and the female prison population nearly doubled. That was not principally because of rising crime, but because of rising punitiveness. A decade ago, courts imprisoned 18 per cent of offenders, but now they imprison 28 per cent and sentences have lengthened. The result is that the proportion of our population behind bars is greater than that of any other major western European country. In consequence, the Home Secretary is faced with a record prison population of 800,000—a figure that is rising—an overflow of more than 400 prisoners in police cells and up to 150 men moving back into an unfit wing at Norwich prison. As we all know, that crisis led the Home Secretary and the noble and learned Lords the Lord Chancellor and the Attorney-General to make a joint statement to the National Criminal Justice Board pointing to the need for restraint in the use of imprisonment.
	As the noble and learned Lord the Lord Chief Justice pointed out, it is perfectly reasonable for Ministers to draw the courts' attention to the current shortage of prison accommodation and it is right that courts should take that into account when sentencing. However, the crisis is largely of Ministers' own making. During the past 13 years, ever since 1993 when Michael Howard became Home Secretary, successive Conservative and Labour Home Secretaries and shadow Home Secretaries have vied to outbid each other in public statements demonstrating their supposed toughness on crime. The courts have responded to the more punitive climate by passing harsher sentences.
	If a policy of restraint in the use of prison is right—and I believe that it is—it should not just be a short-term stop-gap policy. It should be a permanent feature of criminal justice policy. There are many ways in which the prison population could be reduced without reducing public protection. In July, in another place, the Home Secretary told MPs:
	"It is clear to me that there are people in prison who should not be there. They range from foreign nationals to vulnerable women to those for whom mental health treatment would be more appropriate".—[Official Report, Commons, 20/7/06;col. 473.]
	If the Government think that many people in prison should not be there, they should not tell the courts just once, they should keep on telling them. That means that Ministers must send out a strong, sustained and consistent message arguing for the reduced use of prison. That message should be reinforced by legislation requiring sentencing guidelines to take into account the capacity of the prison system. That approach would require political courage, but the alternative is to continue lurching from crisis to crisis in the prison system, which, as the events of the past fortnight have clearly shown, is nothing short of politically disastrous.
	One element of the solution must be to tackle the "revolving door" of short-term prisoners. At any one time, 8,000 prisoners are serving sentences of less than 12 months, a point that was well made by the noble Lord, Lord Corbett of Castle Vale. Such sentences do little to protect the public because containment periods are short. The time spent in prison is too brief for serious rehabilitation, but long enough for prisoners to lose their homes and jobs, which makes them even more likely to offend. Seventy per cent of short-term prisoners are reconvicted within two years of leaving prison. Many of those prisoners would be better dealt with by intensive supervision in the community. Supervision programmes which challenge and change attitudes to offending help offenders to restrain aggressive and impulsive behaviour, develop employment-related skills and overcome addiction problems, and are more likely to reduce reoffending than other forms of punishment. As long as offenders continue to be imprisoned for short sentences, much more should be done to give them help with resettlement.
	The Government recently indefinitely postponed plans for custody plus whereby short-term prisoners would have been supervised by the probation service on release. If custody plus is now off the agenda, the Home Office should instead commission a resettlement service from voluntary organisations for short-term prisoners to reduce the number who keep going back to prison. Another group of mainly short-term prisoners are those on remand, who currently number 13,000.
	Many remand prisoners could be safely granted bail if suitable accommodation and support were available for them. I understand that the National Offender Management Service is currently working on a proposal to commission more support services for this group. I welcome this development and hope that it will be implemented as rapidly as possible.
	The Government should take steps to reverse the rise in the female prison population, which now stands at 4,400. The Chief Inspector of Probation has criticised some probation areas for failing to provide alternatives to custody tailored to the needs of women offenders. We need to see strong and proactive steps to ensure that every area does that.
	A significant proportion of the female prison population consists of poor women from developing countries who have been bribed by drug barons to smuggle in drugs and who have received very long sentences. The impact of drug trafficking on victims is appalling. But drug "mules" are also victims of injustice because sentencing guidelines for these offences do not allow courts to take into account offenders' personal mitigating factors to the same extent as they can for almost all other offences.
	We need to stem the flow into prisons of people who have breached community supervision, for example by missing or being late for appointments. Recalled prisoners now make up 11 per cent of the population of local prisons. There should be a graduated scale of punishments for breaches, with prison used only when non-compliance has continued after less severe penalties have been tried.
	It is a continuing scandal that 70 per cent of prisoners have two or more mental health disorders and that 5,000 have serious and enduring mental illnesses. The number of juveniles in prison doubled in the past decade to 2,500. The Government should dust off and implement a proposal which they published more than a year ago in their draft Youth Justice Bill. That would have prevented courts from jailing juveniles unless they had first tried an intensive supervision and surveillance programme. We should consider extending a similar provision to adults. The Government should take steps also to reduce the disproportionate number of prisoners from racial minorities. Currently, the minority ethnic population constitutes 25 per cent of the prison population, but only 9 per cent of the general population. We need to look at the reports which demonstrate the extentto which discriminatory practices feature from time to time in some of our courts.
	The Home Office aims to build 8,000 more prison places by 2012. But the Government cannot build their way out of the crisis. Since Labour came to power, it has provided 20,000 more prison places, yet we have more extreme overcrowding than ever before. Unless steps are taken to cut the prison population, courts will simply fill new prisons with even more prisoners, providing no relief for currently overcrowded jails. It is like trying to run down an escalator which is moving ever more rapidly upwards. It is time to stop the escalator.

Viscount Bridgeman: My Lords, I, too, thank the noble Baroness, Lady Linklater, for securing the debate and for setting us off with such a marvellous speech. I am also grateful to her for sending us the copy of Increasing Competence of Sentencers in Community Sentences by the Thames Valley Partnership.
	This could not be a more timely debate. The prisons are full; potential prisoners are walking free following the Home Secretary's instructions to the judiciary; Professor Rod Morgan, chairman of the Youth Justice Board has resigned, stating that children's prisons are being swamped; Anne Owers, the chief inspector of prisons, has stated that the Home Office has failed to carry out proper planning; and the police have recorded violent crime increasing year on year.
	Conversely, the 2005 sentencing statistics released on Tuesday revealed that the average jail sentence for robbery has fallen to its lowest level since 1998. They also revealed that the overall number of people jailed in England and Wales also fell to its lowest level for seven years. That is rather paradoxical against the apparently inexorable rise in the prison population. The noble Lord, Lord Corbett of Castle Vale, put his finger on it: it is because of the large number of custodial sentences for minor offences—a point fleshed out by the noble Lord, Lord Dholakia.
	On the other hand, jail sentences for violence against the person, drugs offences and criminal damage fell, despite the comments of the current Home Secretary that the Government are constantly supporting tougher sentences in the course of protecting the public. As my right honourable friend David Davis said in another place, the statistics show that, under Labour, fewer offenders are being sent to jail for less time for more serious offences. The right reverend Prelate the Bishop of Chester mentioned shoplifting. In 1993, the average number of people in jail for shoplifting was 29; in 2003, it was 1,500. My right honourable friend went on to say that that speaks volumes about the Government's approach to public safety.
	This is no longer a crisis. The Home Office and Prison Service are in meltdown. No wonder there is a lack of confidence in the criminal justice system. Lord Coulsfield's report, commissioned by the Esmeé Fairburn Foundation in 2004, agreed that the Government often fail to take account of the research evidence that they have themselves sponsored, a point made by the noble Lord, Lord Rosser. Perhaps that explains why, at present, 60 per cent of adult offenders are reconvicted within two years of being released from prison or commencing a community sentence. As we have heard today, for those released from prison, the reoffending rate is higher at 66 per cent and, embarrassingly for the Government, the reoffending rate for those on drug treatment and testing orders stands at an astonishing 89 per cent.
	I am sure that we all agree that custodial sentencing is not necessarily ideal. Prison can break up families, impede resettlement and place children at risk of an intergenerational cycle of crime, especially with overcrowding, insufficient prison capacity and the dreaded but apparently inevitable churning to which the noble Viscount, Lord Tenby, referred. That seriously undermines attempts to deliver effective rehabilitation. I am sure that we were all impressed by the references to compassion made by the noble Lord, Lord Northbourne, and my noble friend Lord Elton.
	The noble Lord, Lord Ramsbotham, has previously said—I hope that I cite him correctly—that the three things that are most likely to prevent reoffending are a home, a job and a stable relationship. Programmes that help prisoners to develop skills and maintain contact—that enable all three while providing justice and a deterrent—seem to be the ideal to be aimed at.
	The noble Baroness, Lady Linklater, referred to community sentencing. It is clear that community sentencing is not working as it should. The think tank Reform states:
	"in some cases the evidence suggests their use needs to be re-evaluated altogether".
	It is vital to develop community programmes with realistic expectations of offenders' learning abilities. Improperly targeted programmes will, as we can see, worsen rather than improve reoffending. I hope that the Minister will inform the House what steps the Government are taking in the light of those comments.
	The noble Baroness, Lady Linklater, also referred to restorative justice—also a theme of the noble Lord, Lord Hylton—and the noble Baroness, Lady Thomas of Winchester, gave us a moving account of her experiences at Grendon. As the noble Baroness and others have highlighted today, there are some promising approaches that merit investigation. Many have been proposed by Rethinking Crime & Punishment, as well as by the Coulsfield report. I would be interested to know the Minister's views on those two reports. Indeed, the work to which the noble Baroness, Lady Linklater, referred is a spin-off of those reports. It looks at improving the communication and understanding between the judges and probation services so that the sentence-givers have first-hand knowledge of the alternative community programmes. It highlighted the fact that,
	"lack of contact in recent years has affected the knowledge of Judges about community sentences and surely it is impossible to expect an increase in confidence without an increase in that knowledge".
	Indeed, I commend to any noble Lord who has not read it the foreword by His Honour Judge Hall in that Thames Valley report, which highlights the communications problems between the judiciary and the Probation Service. It is very short.
	I agree so much with the study. Considering the general level of communication in the Home Office, as well as the number of times the Probation Service has been shaken up and rearranged by this Government, it is unsurprising that there are communication problems there. If there has been one theme running through the debate, it is the rape of the Probation Service. Indeed, the continual ignoring of the Probation Service is having a serious negative effect on morale, performance, and the recruitment and retention of probation staff—a significant problem if you are trying to ensure a high level of qualified and well informed staff. This point has been well made not only this afternoon but by the noble Lord, Lord Ramsbotham, in his admirable evidence before the pre-Bill committee on the Offender Management Bill, convened by my right honourable friend David Davis. The Government have helpfully provided a transcript of the proceedings, which I commend to your Lordships. As a humble national service officer in the Rifle Brigade, I am obviously proud to be associated with the noble Lord's remarks. He made a very pertinent point in the context of that debate when he asked what can be achieved with the proper, integrated management of joined-up bodies. The Government could well study this and take advantage of it.
	Communication is one area that could be addressed. Another is delivery. Your Lordships have discussed the possibility of community penalties and programmes being delivered locally and the need for co-operation between local authorities, mainstream services and voluntary organisations, and I am sure that debates will arise in consideration of the Offender Management Bill. Successful delivery is the key to building confidence in the system. Within this, there is a clear need to try and tailor custodial and community programmes to specific groups. There has been a steep rise in the number of black offenders in recent years. Women are another such group. Shockingly, more than seven out of 10 women in prison say that they have been physically assaulted at some point in their lives, and two-thirds have been sexually assaulted.
	This House also often comments on young offenders, more than 70 per cent of whom come from broken homes. This is one area in which the Government have not been tough on the causes of crime. The report of the Social Justice Policy Group, under the chairmanship of my right honourable friend Iain Duncan Smith, entitled Breakdown Britain, concludes that government thinking here, as on prisons, has been short-term. It says:
	"The narrow focus on a wholly inadequate poverty target, followed by complacent trumpeting of supposedly major reductions in poverty, has obscured the scale of the problems that have yet to be tackled".
	Poverty, family breakdown, mental health and drug or substance abuse are all undeniable factors in the lives of those who offend and reoffend. Indeed, the noble Lord, Lord Ramsbotham, commented in the hearing to which I have just referred that he was saddened that the Government are not using the current Mental Health Bill to address the provision for mental health problems in prisons. I hope that the Minister can answer this point in his reply.
	On Monday, the noble and learned Lord, Lord Woolf, wrote an article in the Times. In the interests of balance, I have to say that he thought that the Home Secretary's criticisms in his instructions to the judiciary on sentencing were misplaced but, at the end, he gave the Government several pieces of advice. I hope your Lordships will permit me to read them:
	"1) For ministers to announce the action they propose to take to deal with the present crisis; 2) The action to include the repeal or suspension of statutory provisions that force judges to use more and longer sentences than are necessary for the public's protection; 3) The Sentencing Guidelines Council to be given a statutory mandate to produce guidelines that will result in an appropriate balance between the places and resources available for those in custody and the number jailed; 4) The Government to review the prison population and, as an emergency measure, release on licence those prisoners who can be released without endangering the public; 5) The resources of the Probation Service to be increased to restore its morale; make community sentences a realistic alternative to custody for non-violentor sexual offenders and ensure proper supervision of those released; 6) No further legislation to be introduced without properly assessing its impact on the prison population".
	I hope that that last point will be not lost on the Government. After reading it, I was tempted to tear up my speech and hope I would not be spotted; but I feel that that says it all. I shall be very interested to hear the Minister's comments.

Lord Bassam of Brighton: My Lords, I should start as everyone has started: by congratulating the noble Baroness, Lady Linklater, on securing this debate and leading it so effectively and passionately, as she always does. It is always a delight to listen to the noble Baroness and, while I do not always agree with everything she says, I certainly admire the passion with which it is spoken. This debate has provided the House with an opportunity to discuss important issues which affect all of us and our communities. We have had before us a dazzling array of talents from a distinguished cast list who have substantial form on this issue and have done a lot of time in different roles.
	We have heard two former Home Office Ministers, one in recounting mode; a former chief constable; a distinguished former chair of the Home Affairs Select Committee; and a former Chief Inspector of Prisons. We have heard a Christian perspective and people speaking with experience from work on probation boards. Interest has been shown from former special advisers and we have also heard from a very distinguished chair of the Youth Justice Board. I could go on, but the point is that all contributors to today's debate come at it from different angles, nevertheless contributing a great deal to this very important debate.
	As the noble Viscount, Lord Bridgeman, has said, this week there has been a great deal of interest in the criminal justice agenda—one might say that there has been unparalleled interest expressed, not least in the media. It falls to me at least to address some of the issues which currently occupy much of that media time, particularly and principally, of course, the acute pressure on prison places. As a number of noble Lords detected, in part that pressure is due to serious offenders being significantly more likely to get a custodial sentence. Over the past 10 years, there has been something like a 25 per cent increase in the length of sentences for indictable offences; that is, offences which have been tried in the Crown Court. People who have been sentenced in that way are sent to prison for longer periods than 10 years ago. We now have in place much tighter recall arrangements for those who breach their licence conditions and community orders, to which a number of noble Lords made reference.
	However, as the noble Lord, Lord Corbett of Castle Vale, demonstrated, we live within a framework where there is a conundrum: we have a rising prison population but at the same time falling levels of crime, although that fact is not often recognised. We also have some 20,000 more prison places than in 1997, but we have not witnessed the expected shift from custodial to community sentences following the Criminal Justice Act 2003, which is why the Home Secretary, Lord Chancellor and Attorney-General produced a ministerial statement to restate the importance and value of sentencing guidelines.
	Just last week the Home Secretary announced the building of a new 350-place prison on Merseyside and we have an additional 8,000 places to be delivered by 2012. That is not news which many noble Lords who have taken part in the debate today would necessarily welcome, but it is an important fact and, like it or not, we must ensure that we make effective use of prison places. As a Government we will continue to assess whether more places are required.
	Arrangements for sex offenders have also come under scrutiny during the past few weeks, and I echo the words of the Prime Minister in saying that we have one of the most advanced systems in the world for monitoring and managing dangerous offenders, and those considered to present the greatest risk to the public will come increasingly under the multi-agency public protection arrangements led by the police, probation and prison services. Difficult though it is, we are determined to strengthen arrangements for dealing with sex offenders in the community, which is why the Home Secretary commissioned a comprehensive review of child sex offenders. We will ensure that the public are properly protected from dangerous offenders, and let me be clear that prison places must be and will be available for those offenders. But it is equally vital that non-violent, non-dangerous and non-persistent offenders pay back to their communities the damage they have caused through tough and credible community punishments.
	The report by Anne Owers, published last week, was referred to. It rightly highlights a number of concerns about the Prison Service, including, unsurprisingly, overcrowding. However, the report also acknowledges the very significant improvements made over the past five years on key prison issues, including safer custody, education and training, resettlement, healthcare and the treatment of juveniles. More widely, substantial progress has been made in the Home Office on crime reduction. This includes more visible policing, with an 11 per cent increase in police numbers and the publication of a serious crime Bill which includes a serious crime prevention order and measures to try to improve data-sharing to tackle serious organised crime. A reduction in violent crime, bringing more offenders to justice, improving services to victims and witnesses and improved partnership working across agencies have increased public confidence, which is key to the success of the criminal justice system.
	However, and despite improvements, we need to improve public confidence in the criminal justice system, and there is clearly still a lot to do. The report Rebalancing the Criminal Justice System in Favour of the Law-Abiding Majority sets out our ambitious but nevertheless practical programme for change. We are working towards a system that gives the law-abiding public much greater involvement in the criminal justice services they receive, starting with ensuring that the needs of victims are properly addressed. The Government have already achieved much in introducing new services for victims and witnesses, such as new rights, better information and better emotional and practical support. In our view, these initiatives must be expanded further and faster.
	It is essential that we do more to bring offenders to justice and that the community is more closely involved in that whole process, a point to which the noble Lord, Lord Ramsbotham, drew particular attention. Judges and magistrates must become much more involved in the communities they serve, as they are in the new criminal justice centres in Liverpool and Salford, supported by local criminal justice boards. I was grateful for the favourable comments of noble Lords on the importance of those leading-edge projects. These will enable the public to ensure that local policing reflects the priorities of the local community.
	Community sentencing, which, many noble Lords pointed out, is extremely important, includes the expansion of community payback initiatives—making the "unpaid work" requirement of a community sentence visible to the public and increasing opportunities for local people to have a say in the type of work undertaken. The noble Baroness, Lady Linklater, referred to that, and6 million hours were worked last year to benefit communities. The latest initiative is the mayors' project, announced by the Home Secretary last month, in which probation areas will be working with local authorities and locally elected mayors to identify more and increased suitable opportunities. Other initiatives referred to by the noble Baroness and others include the important Thames Valley partnership pilot funded by the Esmée Fairbairn Foundation. These schemes support the work we are trying to take forward to improve local partnership working and contribute to local criminal justice objectives to improve public confidence in how the criminal justice system works.
	Our central aim must be to cut crime altogether. Around half of all offences are committed by people who have been through the system before, so reducing reoffending is essential. We are agreed on that. The latest results for adults, published on 9 November last year, show that overall the reoffending rate had decreased by some 3.4 per cent by 2003 when compared with 1997, so at least we can demonstrate that the numbers are going in the right direction. For juvenile offenders we have achieved a reduction in the rate of reoffending by 4 per cent between 1997 and 2004, and 1.4 per cent between 2000 and 2004. These are small but encouraging results, but there is much more that we can do and we have set ourselves challenging targets in dealing with this difficult group of offenders, many of whom come from extremely troubled backgrounds, as many noble Lords have acknowledged.
	We have invested some £45 million in innovative targeted prevention schemes for young people who are at risk, focusing on enabling vulnerable young people to gain access to the services that they need. For example, the Youth Justice Board has rolled out 50 resettlement and after-care programmes, which provide intensive support to young people with substance abuse problems.
	We have worked to build support and gain cross-government ownership of a comprehensive strategy to reduce reoffending. In July last year, my noble friend Lady Scotland and Phil Hope, the DfES Minister, jointly set up the Inter Ministerial Group on Reducing Reoffending to take responsibility for ensuring the alignment of departmental targets and public service agreements to support the reduction of crime and reoffending, to ensure delivery of agreed cross-government plans and outcomes, and to ensure that they are effectively secured.
	In November 2005, the National Reducing Reoffending Delivery Plan set out the key things the Government will do to reduce adult reoffending; at the same time, we launched three reducing reoffending alliances with the corporate, civic society and faith, voluntary and community sectors, involving local people and organisations to support delivery. With the Department for Education and Skills and the Department for Work and Pensions we published the Reducing Re-offending Through Skills and Employment Green Paper and also a "next steps" action plan.
	NOMS is committed to implementing a new approach to managing offenders through the entire length of their sentence, where the focus will be unremittingly trained on the offender and what is needed to protect the public and reduce reoffending. We have already rolled out this new offender management approach for offenders on community sentences and licences. In November we commenced a phased roll-out for those in custody, beginning with a high-priority group; namely, those serving determinate sentences of 12 months or more who are assessed as presenting a high or very high risk of serious harm, and also for prolific and other priority offenders. This autumn our next phase of implementation will introduce offender management for prisoners serving an indeterminate sentence, which includes those sentenced to life imprisonment.
	As far as possible, each offender will be managed by the same offender manager throughout the sentence. The offender manager is always based in the community, even when the offender is in prison, which helps with preparation for release and reintegration into the community. The offender manager is responsible for assessing the risk of harm and reoffending posed by the offender, for determining which issues need to be addressed to reduce these and for drawing up the sentence plan and ensuring that it is implemented.
	The guiding principle for these changes remains, as it has always been, for the highest quality services to be delivered in order to best protect the public and meet the sentencing requirements of local courts and the needs of local communities.
	I think I have given a fair picture and reflection of our commitment to reducing reoffending and of some of the important work being undertaken in that regard, but much more must be done therefore we remain fully committed to providing a strong and effective Probation Service properly located within the public sector.
	Many noble Lords commented about the Probation Service and its change of direction. I suppose I could sum up the debate by saying that essentially many noble Lords called for a return to a more traditional service. However, the public sector cannot do all that it needs to do on its own. By removing the current statutory restrictions, we will give all sectors, private, public or voluntary, the freedom and the opportunity to innovate in partnership and improve overall performance, something the noble Lord, Lord Warner, highlighted. His comments reflected the importance of changing the service to adapt to new circumstances and keeping apace of wider changes in society.
	Commissioners in the English regions and Wales, acting on behalf of the Secretary of State and working within existing local partnership frameworks, including, importantly, local strategic partnerships and local area agreements, will be able to contract with the best available provider for different aspects of probation services, and to do so across existing organisational and geographical boundaries.
	The Government are committed to reducing crime and its impact on the communities in which we live and work. That is why this debate is so important. During the debate many questions were asked that I shall attempt to address in the remaining minutes that I have.
	One important issue raised was the importance and value of family ties. I know it is often observed that in some ways prison does much to undermine family ties, and that that can have an effect on reoffending rates, particularly when people are reintroduced into the community without as much support as we might desire. We have done much to ensure that family ties are kept up when people are imprisoned. We are developing a cross-government approach to improve support for children and families of offenders to reduce the risk of reoffending, because we understand the important part that family life plays for many of those who have to be incarcerated. That work is being overseen by a joint DfES/Home Office steering group, which will report, as I said earlier, to the inter-ministerial group chaired by my noble friend Lady Scotland and Phil Hope. We have committed a considerable sum of money to ensure that that important work with children and families is undertaken.
	The noble Lord, Lord Rosser, focused on the important work on community sentencing and on what methods work. He made an important point: it is valuable that we carry out research that enables us to be supported by good evidence before we commit ourselves to a programme. That is why we have to look across government and at international evidence before embarking on particular approaches to community sentences.
	The right reverend Prelate the Bishop of Chester observed that it was important to build community capacity and involve the voluntary and community sector, something that was reflected in the comments of the noble Lord, Lord Ramsbotham, and others. It is fair to say that the Offender Management Bill will remove some of the public sector monopolies that have existed in service provision. We must endeavour, with NOMS in particular, to put in place well valued partnerships.
	On the point raised by the noble Baroness, Lady Massey, we have made good progress in implementing the strategies set out in the Youth Matters Green Paper, and through new legislation we will be placing a duty on local government to consult local young people and provide good-quality recreation facilities that meet their interests and needs. Between 2006 and 2008 it is our intention to invest some £115 million directly into the hands of young people through the new Youth Opportunity Fund and Youth Capital Fund, to enable them to build the services they require.
	Much was said about drug support and drug treatment in prison. I shall provide a full response to that in writing. The Government have a good record on drug rehabilitation, on which we have committed substantial funding. The drug rehabilitation programmes are beginning to show improved performance. Completion rates are rising: they were up by 28 per cent to 2003. We are now seeing far higher levels of completion of courses undertaken in prisons. It is vital that that work continues. It will assist us in reducing reoffending rates and provide us with important pathways for the future.
	This has been a very important debate. I recognise its value and the sincerity and commitment of everyone involved in it. Although we might all find it hard to agree on how best to ensure a good rehabilitation programmes and reduced levels of reoffending, if we pursue the matter in a spirit of informed debate, as we have today, I am sure that outcomes will improve over time. I am grateful to those noble Lords who have taken part in what is an important and continuing debate, which I am sure we will return to on many occasions.

Baroness Byford: My Lords, I beg to move the Motion standing in my name on the Order Paper. The single payment cross-compliance instrument that we have before us upgrades the previous regulations. The key amendments that it makes are the designation of a competent control authority as an enforcement body for the new animal welfare standards; changes to the competent control authority designations for existing standards; and revisions to the requirements for the soil protection review.
	While we on this side of the House realise that we must comply with the regulations when they are set down, we have concerns about them. I know that the noble Lord, Lord Rooker, could not be here today and kindly expressed his regret. I have therefore given the noble Baroness, Lady Farrington, advance notice of the issues that I shall raise. I am grateful to other noble Lords who I hope will participate in this short but important debate.
	The changes proposed by the regulations have been looked at by the Merits Committee. It stated in its summary of instruments reported:
	"These Regulations amend existing arrangements for securing cross-compliance by those receiving direct payments under the Common Agricultural Policy. We continue to be concerned that these arrangements may be unduly complex".
	It stated that that was why the regulations have been drawn to the attention of the House.
	Paragraph 13 of the summary states that,
	"the Regulations ('the 2006 Regulations') amend the Common Agricultural Policy Single Payment and Support Schemes (Cross-compliance) (England) Regulations 2005 (SI 2005/3459: 'the 2005 Regulations'), notably to designate a competent control authority (enforcement body) for the new animal welfare standards; to make changes to the competent control authority designations for existing standards; and to revise the requirements for the Soil Protection Review".
	It goes on to describe this more fully inparagraph 14:
	"In our report, we commented that the 2005 Regulations demonstrated the complexity of the arrangements (standards, conditions, rules etc.) which apply in these areas, and that they underlined the importance of providing clear and effective guidance to farmers required to comply with them".
	So very clearly the committee recognises that previous ones were complex.
	We had hoped that perhaps, in looking forward, we would have some slight reduction in complexity. I understand that the 2007 cross-compliance handbook for England has been issued in three separate tranches which total a mammoth 140 pages. Will the Minister tell us how those 140 pages have ballooned from the original mere 13 lines regarding good agricultural and environment conditions that are specified in the appropriate European regulations? Certainly the noble Lord, Lord Bach, when Minister, recognised the need to keep the regulations to a proportionate number, and at that stage we were looking to simplify and reduce regulation whenever we could. But clearly, going from 13 lines to 140 pages begs the question as to what is happening.
	Will the Minister comment on the relative competent authorities? I appreciate the changes that have taken place since the Natural England Act was passed and that Natural England is now set up and will be the competent authority. The Environment Agency will have a greater inspection role, especially on water and soil. What surprised me was that, in addition to the Secretary of State, the Rural Payments Agency could make recommendations directly, with regard to this statutory instrument. With the record that the Rural Payments Agency has not enjoyed this year and still continues to try to put right, I wondered why it was included, given that we already have the Secretary of State, the Environment Agency and Natural England.
	While I am on that point, will the inspection person be one person to represent all bodies or will someone come to do inspections from the Environment Agency, the RPA and even Natural England? That would surely run counter to what we were trying to do in keeping things simple.
	Regulation 6 deals with the soil protection review. That part of the regulation has been rewritten and extended. I understand that it is now 70 per cent longer than the equivalent in the 2005 regulation. Some of that is due to better and more careful explanation and the removal of any ambiguity, but it makes it clear that the soil protection review is not just a paper exercise but a plan that the farmers must take on a regular basis. Further, in the last resort, it appears that the Secretary of State can require a farmer to manage land in a particular way. That is new and could result in an official telling a farmer that a particular field must not be ploughed or put down to grass at any specific time. If my memory serves me correctly, when we debated that point before with the noble Lord, Lord Bach, we looked at access through muddy gateways to get crops off the land. But that is a minor point.
	I return to one or two specific points. First, there is nothing in the regulations that would simplify cross-compliance or reduce its bureaucracy. I refer noble Lords to our debate on 10 January when the Minister said that the average reduction that it was hoped to achieve was 15 per cent of the paper work. Nearly a year on, has any of that been achieved?
	Secondly, perhaps the Minister could tell me how a farmer will lodge an appeal. I may have missed that point but I am not sure about it. I should be grateful to know what happens when there is a dispute about the actions of state officials.
	Thirdly, the measure states that an authorised person can remove anything, which presumably includes property and animals. If that is the case, what becomes of them in the mean time? I assume that the measure applies also to computer records.
	The amendments will result in greater responsibility being handed over to the Environment Agency. What check will Defra have on the Environment Agency or will it act in a totally free manner? Will the authorised person have any training, background or competence, or will they just be someone who is sent round to do the inspection?
	Under these regulations the Government will be able to rely on Natural England to carry out some of the spot checks for cross-compliance? Will an Environment Agency person also be involved or will a sole visit be made? When more modern methods of farm inspection were being considered, it was hoped that one visit would do for the whole range of tasks that a farmer had to undertake. It is equally important that the information gained from the various forms that farmers have to fill in is shared across all sections of Defra.
	I return to my concern that, in being so specific, the Government could, if they are not careful, be accused of micro-managing and imposing measures on farmers in an overbearing way. I accept that some things have to be stated and I do not dispute that, but the real worry is that the Government might want to micro-manage in such a way that they make practical farming that much more difficult. What happens when somebody fails to comply? Is time given to put matters right or is a failure certificate issued straight away? Is there a right of appeal?
	In principle, we do not oppose the thrust of the compliance regulations. But, as I said, to move from 13 lines to 140 pages of detailed regulation seems to me a little over the top, to put it in modern language. Can the Minister tell us how these regulations, which are obviously laid down by EU diktat, are being interpreted in other EU states?
	Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 8 December, be annulled (SI 2006/3254) 5th Report from the Merits Committee.—(Baroness Byford.)

The Earl of Erroll: My Lords, I would like to make a few remarks from the point of view of what this means to the poor old farmer trying to struggle with it all. I agree with everything that has been said so far. The technical points have been highlighted extremely well.
	When I was thinking about this, I picked up some of my old Hansards and noticed that the noble Lord, Lord Rooker, had made one of his early Statementsin the middle of a debate on work/life balance. I thought, "How ironic". If there is one thing that these regulations do not give the farmer, it is work/life balance.
	When I rang the whole-farm approach helpline, I said that I needed it online at three in the morning so that it could help me. I was asked, "Why can't you do it before five?" I said, "Because I'm working before five, trying to make some money to try to help to support the place. I'm afraid that paperwork gets done late at night, so you need to reverse the working hours for your helpline". The man grunted and said, "Well, we pack up at five".
	My poor wife groans when, every month, yet another thick handbook, guidance note, supplement or something hits her desk. I am not up to date with them; I shall have to do it in the next couple of weeks to try to help her with this. One thing that really gets me annoyed is the lack of an index. There is no index at the end of each document. Apparently, there is going to be a cumulative index, but how do you know whether you have the latest one or the latest supplement?
	In order to try to help with compliance, as it was said that inspections would be minimised if we took part, we decided to enter for the whole-farm approach. I would like to know how many farmers have actually done it, because we have had a lot of trouble with the website. It loses submitted data. Last weekend early in the morning, when I was trying to do the December census, I found on about my fifth attempt that half the details were missing. Two or three of the pages seemed to have been amalgamated into one, so we could not continue.
	The other problem is that the advice is not kept up to date. It includes a little note saying, "Use whole-farm approach", and there is some interesting material on cross-compliance. How do you find what you need without going through every single page on what is a very laborious site? It is fine if you are sitting in an office with a high-speed internet connection, but when you are 6.75 kilometres from the exchange with a dickey ADSL line running at quarter-speed and you are in contention with about 50 other people, you do not get adequate response times. The trouble does not lie entirely with the line; part of the problem comes from the Defra website. It takes about a minute to load each page and, two hours later, you are tearing your hair out. If you try to untick anything, you find that everything has been unticked and you have to go through every single page and resubmit every question. An example of the questions is, "Have you got animals—yes/no?". It is a nightmare.
	Why do we get so upset about all this? It is because we know that the inspectors are out there to find fault. They are there to remove the money. One has heard stories or three, four or five inspectors arriving at estates and sitting there for a week, going through everything. I know of one large estate where one margin was found to be six inches out and the owner was fined 1 per cent of the single farm payment, which is a lot of money. The agent said, "I don't think it's worth complaining about it", but, to be honest, I think they should take it to Europe on grounds of proportionality. However, the family in question is wealthy and they do not have the time to take the matter up as we would.
	The trouble is that there is not enough money in the system, and it looks as though the inspectors are there to reduce the amount of money going to farmers. The attitude is completely the opposite of that found in France, and it is very worrying. Things such as the fertiliser recommendations—is it FB209 or RB209?—used to be advisory, but now you have to justify exactly why you have not complied. Because soil nitrogen levels are very variable, you cannot be certain about things, and sometimes calculations have to be made by eye, by experience or by local knowledge. However, you are not allowed to do that any more.
	Then there is the issue of whether people are co-operating. With regard to the RPA, we did our best to complete the SFP5 forms correctly. We could not do so for 2005 because the maps were not approved by the RLR at that point. In 2006, they were. We got the maps through just in time and I was able to correct various figures on them. I included a note saying, "You had better put these back into 2005". Having looked at the entitlement statement, I suspect that they have not done so because we seem to have a floating 0.75 hectare entitlement which I cannot account for.
	Of course, there is no explanation; nor is any complete information sent by the RPA so that you can reconcile your figures. I transposed two tiny figures—I may have put 0.24 rather than 0.42—relating to the tail-end of a field. I wrote saying that the figure appeared the wrong way round, and back came a very stroppy letter saying, "You didn't spot this before we did. You are not in compliance. On the standards, we could prosecute you"—which they cannot, because the level is below the allowed limit. The whole point was to bring matters into line with the RLR maps, but the RPA has now forced us to be out of line for another year. Is that intelligent? I thought that the idea was to co-operate and to try to get the information to tally with the maps. As a result of the RPA's attitude, we now do not tally with RLR base maps, so how do we proceed? I do not want to rattle on for ever, although I could easily do so.
	I want to jump back to a previous point. There is a problem in trying to keep the SFP5 form in balance with the census forms and energy crop areas. Different things are deducted and different things have different classifications, so it is very difficult to get things absolutely right. It is not clear where you should be putting things—particularly small things, such as margins around the edges of fields and so on. The RPA needs someone to sort things out. I should be delighted to do it as it might make my life a little easier.
	Ultimately, a lot of what happens is insulting to the farmer. My wife looked at the soil management material and said, "For goodness' sake, I've been farming for years and years."—it is about 30 years—"This could be a child's handbook". Some farmers may have been doing things badly but, when you listen to the debate, you would think that Britain had gone to rack and ruin or that the soil was completely destroyed and had no health left in it. But some of the advice is counter-productive. You forget that, when you plough back in and incorporate stubble and so on, which sometimes you have to do, that releases toxins as it decays and you therefore put more nitrogen on. Some of these things have other adverse consequences.
	I sometimes wonder if a lot of this has not been written by students with environmental studies degrees, taught by professors who have never left their university. They may have done one farm walk in their life. Reality, however, is about the weather, raining at the wrong moment or being sunny for too long. It is about machinery breakdowns at just the wrong moment. It is about people going sick; on farms, you cannot afford to employ lots of people. It is about contractors letting you down despite the contract and not fitting the right equipment to do the monitoring. What do you do? Tell them they cannot harvest the fields so that they lose their crop?
	The reality is that sometimes you must get on with the job. I am not talking about things that are dangerous or will do any long-term damage. On the whole, nature heals itself relatively well if you do not abuse it badly. There is no acknowledgement of that in the attitude of any of this stuff currently coming out of the Government.
	I shall finish in half a second but, on the SMRs and cross-compliance, I understand that fewer farmers are now putting in for single farm payments, because they think they will not have to cross-comply. They do not realise that they are still subject to statutory management requirements, but there is a huge difference. A statutory management requirement must be prosecuted in the courts, and the department will have to extract money from the farmer. With the single farm payment, they just remove the money up front and the farmer must somehow appeal. The burden of proof is the other way around; the ministry suddenly has the whip hand. That is the big difference.
	I am worried that there is not enough money to do any of this. We are supposed to do all these things. My wife put a huge amount of money, effort and time into doing an entry-level scheme. We managed to get there just in time, but, hang on, it is blocked. Where is all the money going? I suppose that the department has now got so large and bloated, with all the various agencies spawned by Defra, that there is no spare money to go out to the environment and the farmer at the end of the day. It has been totally absorbed by all the employees, civil servants, agency workers and consultants. That worries me. That is not what the purpose of the money was or what the purposes of this move were. I hope that they can get their act together and change things. Perhaps we will get some money out to where it is needed, on the front line.

Lord Marlesford: My Lords, we owe a debt of gratitude to my noble friend Lady Byford for giving us the chance of having a word on this matter. I declare my interest as a farmer. I am particularly glad that we have this Merits of Statutory Instruments Committee. I was a member of the old statutory instruments scrutiny committee, which was extremely boring because all we looked at were vires, so it is a great improvement. With the avalanche of secondary legislation produced by Governments—particularly this one, I am afraid—it is crucial that there should be proper parliamentary scrutiny of its merits as well as its vires. I congratulate the committee on producing this short report highlighting these important points.
	There are two patterns to the backdrop of this debate. First, the much-repeated mantra from Her Majesty's Government about deregulation no longer excites the soul when we hear it. To that must be coupled the commitment of the Barroso commission, appointed in November 2004 with a mandate to deregulate and simplify, to try to make the EU a little less unpopular among member states in the hope, vain as it turned out, that the new EU constitution, agreed at the Brussels IGC in June 2004, would be ratified. We should note in passing that one reason both Holland and France voted down the constitution was the discontent of farmers there.
	The second part of the backdrop is the serious cash flow problem facing our own Chancellor of the Exchequer as he strives to find resources for the many demands that matter: better services in education, the NHS, law and order—as we heard in the last debate—and the fight against terrorism. The need to see that our Armed Forces are adequately equipped and paid to fight the wars on several fronts to which our Prime Minister sends them is as important as any.
	However, let me say something about the home front. One of the few Ministers who I would trust to be effective on deregulation is the noble Lord, Lord Rooker. We are sorry that he cannot be here today, but quite understand why. I know that he will read, mark, learn and inwardly digest every word that has been said. All I would ask the noble Baroness, who is so kindly standing in for him today, is to undertake to ensure that the Secretary of State, Mr Miliband—for whom I also have quite a lot of time—and, more important in this instance, his part-time Permanent Secretary, Helen Ghosh, take the time to read the debate.
	It is clear that the RPA, which has made such a mess of administering the payments, is now gearing itself up to administer the RPA cross-compliance with a heavy hand. The RPA employs more than 3,000 people, of whom 200 are inspectors who undertake the cross-compliance inspections. The RPA deals only with England, but there are about 200,000 farms, of which more than half are smallholdings; that is, they are smaller than 50 acres. I am not a member of the NFU, and I have not always praised it, but in the excellent evidence it submitted to the EU in November 2006 it stated:
	"'Cross-compliance' has taken on the dimensions of a huge spectre that hangs over every SPS claimant and bedevils even the simplest agricultural operation or land transaction. In short, it has grown from an instrument that seeks to assure good agricultural practice to one that increasingly prescribes agricultural activities and precludes flexible land use".
	That is a serious thing for such a body to have to say, and it is a terrific condemnation. Helen Ghosh should be very ashamed that it should be written because it is the bureaucrats who, despite the excellent efforts that the noble Lord, Lord Rooker, is making, must be asked to do something about it.
	I had an interesting letter from the noble Lord, Lord Rooker, which he did not sign himself. If he had read it, I think he might not have signed it. I raised a point, which does not affect me at all, about blackthorn and the worry that farmers have when it encroaches into field margins that they are not allowed to cut by mechanical means in certain months to keep them in good condition. The letter was an example of the bureaucracy that we want to avoid. I am sure it was very carefully written and that somebody took a lot of trouble, but it illustrates the problem. I shall not read great chunks of it, because it is quite long. Instead of giving the sensible answer—which would be to let farmers cut the blackthorn down when it encroaches and, provided they do not do something silly, support them—the letter states that a derogation has to be applied for in every instance and photographs have to be supplied. Think of the cost, not just to the farmer who has to do it all, but to the civil servants, who could be doing something for someone who needs a new kidney machine. That is the opportunity cost and is what the Government must get a grip on. They must recognise that this sort of thing is unacceptable and intolerable and makes people very angry.
	It played its part in causing a revolution against the EU constitution. I warn the Government that they must take this matter seriously and do something about it because it makes people angry. The final conclusion that this letter comes to is, "Well, you could always allow the two metres to become a bigger hedge". What an incredible idea. Of course that sort of thing does not only apply here, it is a big problem in Brussels.
	Gold-plating has been referred to. Whether the gold is made in Brussels or in Whitehall I am not sure—probably some in both. I went with the EU Select Committee to Brussels in July 2005. We had a very interesting conversation with Vice-President Gunter Verheugen, whose job it was to try to reduce the bureaucracy. He made the most interesting comment. He said that when he was trying he found that senior officials in his Commission saw theirmain role in life as—and I quote his words—to keep the "chauffage going"; in other words, to keep themselves in their jobs. That is the danger of bureaucracy. That is what the Government have to get a grip on, and that is what I ask the noble Baroness to take back to her department as a message, at least from me.
	My Lords, I begin by stressing the reality that about £1.6 billion per annum of public money is being put into an industry. In response to the noble Earl, Lord Erroll, the cost of administering the agri-environment scheme is met by Defra and its agencies, and none of it comes from funds available for farmers.
	As noble Lords have recognised, this amending statutory instrument does not introduce any new standards. It establishes inspection and enforcement arrangements for the animal health and welfare statutory management requirements that we are required to include within cross compliance from 1 January 2007. There is a serious risk of disallowance if we do not enforce those.
	We need to make changes to inspection and enforcement arrangements for existing standards to deliver more efficient and better-targeted checks and controls. We need to clarify cross-compliance requirements to provide for the unusual circumstances and—this has been welcomed by the industry and was referred to by my noble friend Lord Grantchester—to give additional flexibility to farmers especially in connection with the soil protection review and soil management requirements for 2007 onwards. The provision also reflects changes resulting from newly implemented domestic legislation, so that, for example, farmers do not have to meet two different standards as a result of recent changes to the law on SSSIs—an interest of the noble Lord, Lord Marlesford—and as a result of the establishment of Natural England.
	This is an EU requirement that all farmers must meet in order to qualify for their single payment. Most of cross-compliance is existing law or good farming practice—a point that was particularly recognised by the noble Lord, Lord Greaves, my noble friend Lord Grantchester and the noble Baroness. There are two elements that farmers comply with: the first is statutory management requirements comprising obligations under a number of EU articles from 19 directives and regulations applicable to all farmers across the EU. These are legal requirements, and, from 2005, have been subject to a rolling introduction, culminating in the introduction of the first three SMRs—the animal welfare SMR, for which the statutory instrument appoints the State Veterinary Service as the competent control authority. These are baseline standards.
	Many noble Lords in this House recognise, as did the noble Earl, Lord Erroll, that much of it is good farming practice. Indeed, some organisations promoting responsible farming have been advocating many of those measures for years, including LEAF, with which the noble Baroness is closely involved. Its introduction to integrated farm management recommends leaving buffer strips. So there are occasions on which we cannot please everyone.
	I made a note of the point made about blackthorn raised by the noble Lord, Lord Marlesford, but, without seeing the letter, I am unable to take it further. Perhaps he could send me a copy.
	Much has been made of the complexity of standards introduced previously. Many are requirements under existing law and they are reasonable. By comparison with some assurance schemes, there is a light touch. For example, the red tractor scheme contains 150-plus standards to be met. It is worth noting that the instrument also introduces flexibility on post-harvest management of land, which reduces burdens on farmers without negating any of the environmental gains of cross-compliance.
	My noble friend Lord Grantchester and other noble Lords recognised that this is part of wider efforts to reduce the administrative burden on the farming industry. The debate is not about the cross-compliance handbook, but I will deal with the comments of the Merits of Statutory Instruments Committee on that. The cross-compliance supplement for 2007, for which we consulted stakeholders and took care to ensure the use of plain English, reduces burdens by helping to direct farmers to information key for them. I note the point made by the noble Lord, Lord Greaves, about updating computers and supplements and will look further into that.
	There is additional signposting of information—calendars of important dates, for example—and those efforts have been welcomed by the industry, including the NFU and the Country and Land Business Association. At this point, I assure my noble friend that although we welcome contributions from organisations such as the RSPB, they are considered carefully alongside the many other representations that we receive.
	The noble Baroness, Lady Byford, may like to know that although the total number of pages in the handbook and supplements runs to 137, 58 of those are advice, explanation and appendices. The 74 pages of requirements are referring to the SMRs—such as animal welfare—go in to considerable detail, but we have been working closely with the industry.
	It seems that whenever we set out informal requirements, we are criticised for so doing, but we regard that as a responsible approach that saves farmers having to refer to a wide variety of legal texts and publications. That has been welcomed as a helpful mechanism. In recent research, 75 per cent of farmers surveyed said that their knowledge of cross-compliance had improved in 2006, and 70 per cent found the handbook useful.
	We are consulting the farming industry to ascertain how we can improve any future publication. We have to balance two conflicting industry requirements: for greater detailed information on specific standards, kept up to date; and the request that I have noted from noble Lords all round the House to keep it as short and simple as possible.
	Unless we have the measure in place, we will be at serious risk of disallowance of EC funds for not having the appropriate mechanisms in place to administer and enforce the new 2007 animal welfare SMRs, which are now a mandatory requirement for the single payment. We are obliged under EU regulations to sample 1 per cent. In answer to the query about loss, the deductions that we are looking at in the context of the very large amount of money to which I referred are 0.035 per cent.
	The RPA is currently carrying out the majority of inspections, with appropriate training from specialist bodies, and will continue to do so in 2006-07, with minor exceptions where the RPA cannot be trained in highly specialist fields. I note the comment on how helpful it would be to have one person carrying out the inspections, but there are different areas to be covered in different specialisms.
	The noble Baroness, Lady Byford, and the noble Lords, Lord Marlesford, Lord Greaves and Lord Granchester, mentioned gold-plating. The implementation of the SPS means that several of the restrictions and the bureaucracy associated with the old CAP have been swept aside, and farmers now have greater freedom to farm to meet the demands of the market. To receive their subsidy in full, claimants are required to meet only the minimum standards of cross-compliance, which are derived largely from existing legislative requirements or are based on good farming practice. I remind noble Lords that we are dealing with a large amount of public money.
	The noble Baroness asked about the role of the Rural Payments Agency. Responsibilities are not being transferred to the agency; they are being transferred from the RPA to the Environment Agency. The Environment Agency was previously a delegated agent, and carried out inspections for SMRs 2, 3 and 4 on groundwater, sewage sludge, and nitrate vulnerable zones. EA is now the competent control authority for these standards. It is also the domestic inspection body, which means that it can conduct its own risk assessments and can target inspections more effectively.
	We believe that the regulation is a key tool for Defra in providing high standards in environmental, human and animal health. We have made a commitment to reduce the administrative burdens, as the noble Baroness recognises, and I will write to her on the stage that we have reached in working towards that target. We are optimistic that cross-compliance will fully deliver its part of that programme by the start of 2008.
	Noble Lords also referred to other countries. There is a wide variation in approaches. Many member states do not include existing legal requirements, or expect claimants to access some requirements electronically or via multiple cross-references. The noble Earl and others talked about reducing the number of pages, but that would of course increase the amount of the work that the farmer has to do to access other relevant information.
	The Commission is due to report on cross-compliance by December 2007 and, as part of this process, may propose amendments to standards and/or the framework used by member states to develop their good agricultural and environmental conditions. Appeals can be lodged through the appeals process and considered by three independent persons. Decisions by the Secretary of State are subject to judicial review.
	On competent authorities, Natural England can be asked to carry out inspections for the RPA, and we provided this.
	The only competent control authorities are the RPA, the Environment Agency and the State Veterinary Service.
	The Merits Committee may not have been aware that while the total number of pages in the handbook and supplements runs to a high level, the majority refer to existing SMRs. The RPA inspectors are fully trained and briefed. On the point made by the noble Lord, Lord Greaves, about the three documents and where the regulations are placed, the 2007 index is an important help. The GAEC monitors and revues the process regularly to ensure we are as up to date as possible. The competent control authority is the Voluntary Medicines Directive.
	To my noble friend Lord Grantchester I would say that we are dealing with a very large amount of money: 10 per cent of the £1.6 billion is considered to be at stake if cross-compliance is not properly enforced. Commission authorities apply rates of reduction—5, 10, 25 or even up to 100 per cent. I reassure noble Lords that we are talking about those who deliberately set out to go against the rules, not those who may have a claim due to illness or other problems. We are dealing with intentional negligence.
	I have sought to answer the points raised as comprehensively as I can. We are obliged to inspect the 1 per cent and are working as closely as we can with the industry to ensure that we do this work as effectively as possible, which is in their interests. I will not follow the noble Lord, Lord Marlesford, down the route of discussing general Treasury problems, which I do not think he would expect. However, I am utterly convinced that the Treasury would not be happy with Defra were Defra to ignore the rules that allow us to be able to access this source of funding.
	Perhaps I may correct what I said in respect of competent control authorities, which include RPA, SVS, EA and the Veterinary Medicines Directorate, as I thought I said but obviously did not. We will work hard to ensure that we do all we can. The aims are extremely good.
	Quite frankly, I think to sweepingly attack all bureaucrats in Defra, when we have many professional people who work very hard and share all noble Lords' aims about the environment and the interests of the farming community, is a little unfair.

Baroness Byford: My Lords, I thank the Minister for her response and I am grateful to all noble Lords who have spoken with regard to this statutory instrument. I am also grateful to the Minister because I know that this is a very full statutory instrument to consider. She said that the cost of £1.6 billion would be borne by Defra. In that equation she did not—which was perhaps an oversight—acknowledge the farmer's time that goes into reading, complying and adjusting. For those of us who employ farm secretaries, we know how they have to get everything right; otherwise those payments are jeopardy. She also suggested that no new work was involved, but paragraph 6, "Soil Protection Review", is now 70 per cent longer than its equivalent. Obviously, there is new work. She said that the RPA would do the inspections, which I am glad to have clarified, and that the Environment Agency would have inspectors too. I am not asking for a response today. Clearly, the Minister has done very well.

Lord Skelmersdale: My Lords, the third-party deduction scheme for people on some benefits like income support has existed for many years. Although I agree with the National Association of Citizens Advice Bureaux that it is overdue for revision, that is not the reason I have put down this Prayer to Annul; it solely concerns the regulations. Its objective, as the useful Explanatory Memorandum makes clear, is to permit a facility for credit unions to have recourse to reductions of the income of borrowers who are in receipt of the standard list of social security benefits. This scheme is in pursuit of the Government's financial inclusion strategy, about which the Minister will remember I spoke in passing on Monday when we discussed the Welfare Reform Bill. I said then and I repeat now that we on this side of the House believe that the Government's attempt to achieve that is correct, but that often they go about it in a rather dangerous way, and to my mind the regulations are rather dangerous.
	By definition, benefit recipients are on low incomes and access to mainstream financial services, mostly banks, is not available to them. Far too often they are tempted into loan arrangements with exorbitant rates of interest. I have seen annual percentage rates of over 100 per cent offered. These must be accepted from time to time, otherwise the APRs would come down or the lenders would go out of business. Borrowers, by definition, therefore get into the most horrific financial straits, are pestered by debt collectors and regularly lose their possessions. That leads to what can only be described as a miserable and disastrous life.
	The last Conservative Government set up the Social Fund to alleviate this problem. Noble Lords will recall that it still continues to offer grants for perhaps a new cooker or the repair of a boiler and—most important in this connection—it makes loans. These loans are repayable either from income or, in extreme cases, by reduction of benefit. The scheme was and is administered by local social security offices and each one has its own budget.
	It became quite quickly a postcode lottery as some offices had surpluses and others spent their budgets early in the year. One of the few social security measures I was able to undertake unilaterally as a Social Security Minister in Northern Ireland—or as a Social Services Minister, I should say, to give it its technically correct title—was to watch the position in all the offices in the Province and, periodically, to take the money from the under-providers and give it to the offices which had reached their limit. This practice then became commonplace across the United Kingdom.
	The total budget was always severely limited, as I believe it still is. It is fair to say, however, that I have not had many complaints about it recently. I do not know if the Minister has had any complaints during the few weeks that he has been in his current position.
	I happened to be listening, rather unusually, to my noble friend Lady Byford winding up the previous debate. She said that periodically we ought to consider whether there is a better way of doing things. I ask the Minister: what consideration, if any, was given to increasing the loan sector of the Social Fund, which is, to my mind, the obvious solution to the problem of achieving more financial inclusion? Would this not have been a far more cost-effective way towards curing the problem than the way the Government have chosen? If so, there would have been no need for these regulations in the first place.
	Rather than increase the Social Fund budget, the Chancellor decided to do something very different. As part of his social financial inclusion project he set up a small fund of £20 million originally, as I understand it, to be bid for by what he calls third-sector lenders, which are commonly known as credit unions. Perhaps the Minister will update us on this as the scheme should have become live on 1 January. I rather wonder whether it did.
	These regulations widen the third-party deduction scheme to include non-priority deductions from claimants' benefits when contracted repayments arrangements have broken down, the object being to encourage low-cost lending schemes and, by so doing, give credit unions a tremendous boost. Clearly they are delighted. What business of the Government is it to enable this rather one-side performance? After all, the Government are supposed to be even-handed—or at least that is what various Ministers have told us over the past eight to 10 years.
	When the department had prepared the regulations it sent them, as it had to by law, to the Social Security Advisory Committee. That committee was far from enamoured and produced one of the most critical reports I have seen in a long time. Your Lordships' Merits Committee, to which I am grateful, supported and added to some of its findings. The Government have always admitted that they did not expect a high take-up rate. The committee concluded that, in that case, the set-up costs did not seem to be worth the candle. It used the word "over-elaborate", which amounts to the same thing.
	At the time of the report, officials had estimated that those costs would be about 8 per cent of the scheme. The Chancellor's response was surprising to say the least—he threw more money at it, so reducing the percentage. I understand that the Chancellor promised in the last Budget and the Autumn statement, which he gave not long ago, that the amount of money will be doubled, which will bring the costs down to about 3 per cent. But this is only if there is a full take-up, which the committee doubted as it had received responses, including those from three potential lenders, one of which was against the proposal. The committee pointed out that there are more than 550 credit unions but that a maximum of 50 would participate and, at that, not until after three years' time. Those who welcomed the scheme did so only in principle, believing that it would provide adverse incentives for claimants, and for lenders to intensify their efforts to attract borrowers. That cannot, or should not, be what the Government want.
	We should not be overly concerned with the lenders, however. The people who matter in all this are the borrowers. I agree with the respondents who said that deduction from benefits has historically been allowed only for arrears and essential living costs. Those are: housing costs paid direct to the lender under the DWP's mortgage interest payment scheme, other housing costs, rent arrears, care home charges, hostel payments not covered by housing benefit, gas or electricity charges, water and sewerage charges, council tax or community charge arrears, magistrates' courts fines and—a subject no doubt becoming rather dear to the Minister—child support maintenance. Ironically, most of those cover money owed to the Government, either local or central, and the Government have always looked after their own pocket. That is not a complaint; it is a fact. The taxpayer would expect that of government.
	Since privatisation, though, deductions have continued, as it would be disastrous to cut off supply. However, Citizens Advice points out that there is legislation to prevent that. The argument goes: why then should financial institutions have the same advantages? Borrowing money is not an essential for living. The state is, rightly, the bottom line of insurance for the people of this country, but it should not ever encourage them to be profligate, which the social inclusion fund is in danger of doing.
	The other point covered by the Social Security Advisory Committee report that I should mention is the level of deduction. I am sorry that the committee's remarks were so abbreviated in paragraph 5.6. It commented that it would be possible for a non-priority debtor with multiple loans to be paying £1 a month in cases of multiple arrears being handled by a debt collector. It therefore thought that lenders using the maximum allowed amount of £2.90 a week, or 5 per cent of the income support allowance, was too high. The committee did not comment on the fact, or at least I could not find it in its report, that the regulations cover the situation where arrears are due not only to third-party financial institutions but also to housing authorities and privatised fuel companies—perhaps court fines as well.
	The regulations allow up to 25 per cent of benefit to be deducted by the DWP for onward transmission to these creditors. Even with the pecking order suggested, where the financial repayments come at the bottom of the list, this is far too high. The bottom line that I invite your Lordships to consider is someone on income support of £57.45 a week. That is a subsistence allowance that the Government believe it is just possible to live on. That being the case, the Minister must explain how it is possible to live on only 75 per cent of that—a mere £43.09 a week.
	Moved, That an humble Address be presentedto Her Majesty praying that the regulations, laid before the House on 6 December 2006, be annulled(SI 2006/3188). 5th Report from the Merits Committee.—(Lord Skelmersdale.)

Lord Kirkwood of Kirkhope: My Lords, I, too, am grateful to the Merits Committee and the Social Security Advisory Committee, and to the noble Lord, Lord Skelmersdale, for bringing these regulations before us today. We are talking about a very serious problem. Perhaps the Minister will ask his department what the full extent of low-income-family indebtedness is. Government figures which I have seen give me no comfort or assurance that the Government know how bad the problem is. The best thing that I have seen to date is the Joseph Rowntree Foundation study which was done by Collard and Kempson in 2005. It came to the conclusion that 6.2 million low-income people aged between 16 and 64, in the course of the year that it studied, needed to borrow. Some 1.8 million of them had borrowed commercially, and 750,000 had been forced to use a high-income lender. That is more than likely to be a substantial underestimate, because we all know that people in distress in low-income families often turn to family, friends and informal arrangements to get them through difficult circumstances. So this is a big problem.
	The Treasury should stop interfering with the Department for Work and Pensions. The noble Lord, Lord Skelmersdale, is absolutely right that the Chancellor of the Exchequer magicked £20 million into this equation, without any let, hindrance or, it seems, thought from the Department for Work and Pensions policy experts who have been working on access to credit for low-income families for far longer than Treasury people. This £3 million is a result of that interference and a complete waste of money.
	How will the scheme work? The unit that will oversee it will presumably be centrally based. How on earth will it relate to front-line staff to work out whether the lenders are competent to enter minutes of agreement of the kind that are envisaged in the regulations, or whether the claimants and customers of the department—the people who are taking out the loans—will get proper service from them? Any suggestion that that can be done for £150,000 a year is laughable. The Minister may not have time to explain in his winding-up speech the mechanics of how the£3 million will be spent and the running costs thereafter, but I would be very interested to receive details in a letter and happy to share it with others. I do not believe that it can be done in the way which the Government suggest.
	I object to the drift towards debt recovery through the benefits system. The benefits system is not a debt recovery tool. Over the years, we have seen increasing numbers of people having their benefits clawed back in circumstances that were admirably described by the noble Lord, Lord Skelmersdale. These families are not in a position to cope with substantial reductions to what are subsistence-level benefits in the first place. As far as I can calculate, 11 types of deductions—there may be more—can already be made from subsistence-level benefits. It is wrong for this House to allow others to be added willy-nilly without very careful thought. It is wrong for this House to allow others to be added willy-nilly without very careful thought.
	We are being quite casual and wrong in assuming that the situation is acceptable just because benefits are uprated by price protection annually, which seems a perfectly reasonable thing to do from year to year. As an example, unemployment benefit in the early 1970s, when I first took an interest in this matter, was the equivalent to some 20 per cent of average earnings. The equivalent GSA is now worth about11 per cent of average earnings. It is easy for us all to slip into the ways of thinking that from year to year price protection will give customers and claimants some degree of protection but, over the period, those who are relegated to non-statutory price protection on an uprating basis suffer grievously. Citizens Advice tells me that 40 per cent of their debt clients on income support have no money left at the end each week, so we are dealing with families who are right up against a degree of adversity that some of us would find it difficult to deal with.
	I think that these regulations for the first time extend the third-party debt access to contributory benefits. I may be wrong about that, but I would like it confirmed one way or another, because it has always been otherwise in the past. I was around when the system was put together during debates on the Social Security Bill in 1986. It is actually an inheritance from the supplementary benefit system. The noble Lord, Lord Fowler, the Secretary of State at the time, rightly recognised that priority debts—and I emphasise the phrase "priority debts"—should be given some priority in terms of deductions that could be permitted from benefit levels. We have now moved away from priority to levels of debt that are difficult to describe—certainly as they were originally envisaged, at the time when the scheme was set up in 1987. It is wrong to do this now without looking across the whole spectrum of the history that attaches to this system, how it is operating and the context in which it is operating, before we implement piecemeal small amendments of this kind. The third-party debt scheme would have to be reviewed in its totality before I could be confident that what we are being asked to do in these regulations is right.
	The full review of access to low-cost credit is also overdue. I commend the work done by Collard and Kempson, and I hope that the Minister adds it to his weekend reading, as it is extremely well argued. As my noble friend Lord Oakeshott and the noble Lord, Lord Skelmersdale, said, it points clearly in the direction, for anyone with any knowledge of these things, to a more intelligent use of and increase in the social fund provision in terms of community care grants—grants, not loans—as well as budgeting loans. I am sure that the Minister will resort to saying that the Government have put £90 million in the three years up to 2005-06, and that is very welcome; but the Collard and Kempson study found that twice that will be necessary to meet the identified need.
	Finally, if we are looking at ways in which to support credit unions and region-based community loan schemes, as we should be, that means investing in them directly to give them more capability of servicing the needs that they generally meet well. The best credit unions are the biggest ones; the community-based credit associations are the ones that are best able to meet the needs that they face. If it was my money to choose how to spend, I would certainly have invested some £3 million, or gone down that kind of route, rather than pursuing this scheme, which, I am absolutely certain over the coming five to 10 years, will prove to be next to no use at all, hard to administer and dangerous, because it is beingdone without proper accounting of the background and history of the schemes that it seeks to try to influence.

Lord McKenzie of Luton: My Lords, I am very grateful for the opportunity to respond to this debate. I shall, of course, do my best to answer all the points that were raised. However, I start by taking the opportunity to explain the Government's thinking in introducing these regulations as, given the tenor of the debate, I think that there is some misunderstanding. In doing so, I hope to reassure your Lordships about the relevance and value of the scheme that will be created by the regulations—which we have called the eligible loans deduction scheme.
	Many people on low incomes are unable to use the financial products and services that are taken for granted by most of us. They often cannot access mainstream bank accounts or low-cost loans; and that imposes real hardship on individuals and their families. In some cases, families turn to high-cost credit or illegal lenders and get locked into a vicious circle of unmanageable debt. The noble Lord, Lord Skelmersdale, in particular acknowledged that point. The regulations were made in the context of the Government's determination to tackle financial exclusion. The case for doing so and the strategic approach were set out in the Treasury report, Promoting financial inclusion, which we published in December 2004. In total, the Government have committed £120 million to tackling the problem.
	One of three priority areas highlighted in the Treasury report was to improve access to affordable credit for people on low incomes. A number of measures were announced to support this objective. They included a growth fund of £36 million, which was allocated to credit unions and other third sector—not-for-profit—lenders, for them to provide additional affordable credit in areas of high financial exclusion. They also included the creation of a financial inclusion taskforce to support and monitor the provision of credit by third sector lenders. The deduction scheme was proposed in the same Treasury report. It is a scheme that allows third sector lenders to apply for deductions from benefit where normal loan repayment arrangements have broken down.
	When people have to borrow, it is important that they can do so at affordable rates from responsible lenders, but the costs of lending small, unsecured amounts to people on a tight budget can be high. Default rates in the third sector can be as high as15 per cent. One of the larger lenders in this sector calculated that a reduction in default rates from15 per cent to 5 per cent could save them up to£1 million a year. The deductions scheme could therefore considerably reduce the risks and costs of lending to people on low incomes. This in turn will help to keep interest rates at affordable levels and allow funds to be reinvested and lent to more people on low incomes.
	The issue of cost has been raised, and the impact of the scheme cannot be looked at in isolation. It is part of a package of measures that the Government are introducing to support third sector lending, including through the growth fund, additional training support, and more flexibility for credit unions in setting interest rates. I can confirm, however, that the level of interest from lenders in the deductions scheme in the few weeks since the regulations were made has been gratifying. By 31 January, we had received 60 requests for the application form to join the scheme, 37 had been returned, and 30 have already followed up by signing the required memorandum of understanding. That level of early interest reflects the potential value of the service on offer and suggests a higher take-up than we first anticipated.
	We have kept costs to a minimum. The total cost of setting up the scheme, including running costs until March 2008, is now expected to be £2.25 million. Most of this money was spent on changes to computer systems, but that investment means that future running costs will be small, probably between £100,000 and £150,000 per year.
	The financial inclusion taskforce will monitor the cost-effectiveness of this initiative in the context of the Government's wider package of measures, and I have asked officials to ensure that a comprehensive evaluation framework is in place. The scheme needs a reasonable period to settle in; but in the unlikely event that our evaluation shows that the scheme is not achieving its objectives, we will revisit the policy.
	The issue of the impact of multiple deductions causing hardship to customers has been raised. In drafting the regulations, we balanced carefully the aims of the policy on the one hand with safeguards to the benefit claimant on the other. The deduction rates and limits set out in the regulations ensure that the claimant is left with sufficient money to live on after deductions are taken, although I acknowledge that the amount is not overly generous.
	The third party deduction scheme has been in place for about 30 years. Its main purpose is to safeguard the position of people receiving income-based benefits who fall into arrears with essential bills, but deductions can also be made for other purposes, for example to enforce payments for fines or to support children. The deductions scheme works well and we do not believe that a comprehensive review is needed at this time, although I acknowledge that the noble Lord, Lord Kirkwood, took a different view. I can assure your Lordships that we do not amend the scheme or introduce new deductions without careful consideration of the value and consequences of doing so. In fact, although we have previously changed some of the rules governing the scheme, this new eligible loans deduction is the first new type of deduction introduced by the Government since we came to power in 1997. This shows that we do not take such changes lightly.
	Concern has been expressed, particularly by the Social Security Advisory Committee, about whether this would encourage lenders to lend irresponsibly or to pursue recovery without taking account of potential hardships to the debtor. In response, the Government changed the regulations to extend the period of default to three months before a loan can be recovered. We extended the memorandum of understanding that all lenders in the scheme are required to sign. It sets out the good practices that lenders must follow in making loans and dealing with default. For example, lenders are required to carry out a risk assessment of a customer's ability to repay before making a loan. They must handle cases of financial difficulty sympathetically and positively, offering rescheduling and money advice before submitting a case for deductions from benefit. That is in clear contrast to the market to which some poor people might be forced if these facilities were not available to them. Lenders need to demonstrate that they have a policy of following these good practices before they are accepted on to the scheme and must then show they have done so with each individual referral for benefit deductions.
	A number of noble Lords, including the noble Lords, Lord Skelmersdale, Lord Oakeshott, Lord Taylor and Lord Kirkwood, referred to the Social Fund. The Government have demonstrated their commitment to the Social Fund budgeting loan scheme. An additional £300 million has been invested over a six-year period from 2003-04 to expand the discretionary loans and grants budget, helping more people who claim income-related benefits to meet and budget for large and unplanned expenditure. We anticipate that byApril 2008 the Social Fund will be lending up to£800 million per year. Financial exclusion and inability to access mainstream borrowing does not just affect people on benefits, and the aim of the policy is to expand the supply of affordable loans to all those unable to access normal mainstream credit.
	I was asked about complaints regarding the Social Fund. Although none has crossed my desk in the past three weeks, the note that I have from officials says that we are not aware of any particular theme of complaints in that regard. The noble Lord, Lord Skelmersdale, asked if the scheme had gone live. Yes, the regulations came into force on 27 December 2006. The issue of the deduction rate was touched on by several noble Lords. We consider that the current rate of £2.90, in context, is modest and consistent with the amount taken to repay arrears of other debts that benefit deductions may cover, for example rent arrears and utility debts.
	Why did we reject the Social Security Advisory Committee's recommendations not to proceed? We carefully considered its report and, as I outlined, made modifications to further protect the position of the benefit customer. My right honourable friend the Secretary of State for Work and Pensions made a full statement in response to the points raised when the regulations were laid before Parliament on 6 December. He noted calls for an overall review of the third party deduction scheme but, as I said, decided that it was important to the overall strategy to proceed with the proposals. The Government greatly value the contribution made by the Social Security Advisory Committee in all of its activities, including the scrutiny of regulations. We considered the committee's views on these regulations very carefully and made modifications, but wecould not accept their overall recommendation not to proceed.
	The costs which I outlined of £2.617 million are considerably lower than the £10 million originally allocated from the financial inclusion fund, and we expect future costs to be lower.
	The noble Lord, Lord Kirkwood, asked what the Government are doing generally on high levels of debt. The strategic cross-government approach to consumer debt is set out in the Tackling Over-indebtedness annual report, which was published in August 2006. Our key objectives are to minimise the number of consumers who become over-indebted and to improve support and processes for those who have fallen into debt. As part of this strategy, £47.5 million has been made available to fund the recruitment and training of over 500 new debt advisers. Timely, well delivered money advice can reduce the costs of over-indebtedness to the benefit of the individual and of society as a whole.
	We need to keep this issue in perspective. The vast majority benefit from credit arrangements. However, a small minority experience difficulties, such as the4 per cent who are in arrears for more than three months on either consumer credit or utility bills and the 5 per cent of borrowers who consider their borrowing repayments to be a heavy burden.
	I have dealt with the point about calls for a review of the third party deduction scheme and the issue of multiple deductions in respect of benefit. The view that this is introducing a haphazard change to the system is unfounded. As I said, the scheme has been in place for 30 years and this is the first change of this type that the Government have made.
	I hope that I have addressed the individual points that noble Lords have raised. If not, I am happy to have another go; I am certainly happy to review the record and to write further if necessary. I hope that I have also addressed the concerns about these regulations. We are confident that the new eligible loans deduction scheme will help to increase access to affordable credit—that is its objective—and keep vulnerable people out of the clutches of loan sharks. It is a modest but important element in the Government's wider strategy to promote financial inclusion by encouraging financial organisations to cater for the lower-paid. As I said, 60 lenders have already expressed an interest in joining the scheme by asking for application forms and 30 have already joined. To annul the regulations at this stage would take the service away from them before it has had a chance to prove itself. I commend the scheme to the House and urge the noble Lord, Lord Skelmersdale, not to press his Motion.

Lord Burnett: rose to ask Her Majesty's Government what plans they have for the future of inheritance tax.
	My Lords, I draw attention to my interests declared in the register.
	I am grateful to be able to introduce a debate tonight on inheritance tax. Although I shall be adverting principally to that tax, your Lordships will understand that our discussions would be incomplete if we did not also discuss the interrelationship of that tax with capital gains tax. With the leave of the House, I shall say a few words about that towards the end of my remarks. I shall also refer to one or two changes made in last year's Finance Act, especially those relating to lifetime trusts.
	Recent years have seen a growing clamour of disquiet and discontent about inheritance tax. The public are rightly concerned at its injustice as more and more individuals and estates are brought within its scope. Just before Christmas, a survey indicated that over 850,000 individuals in this country had assets in excess of £0.5 million, and that number was set to grow. The Institute for Fiscal Studies produced a paper last week which calculated that 3.25 million individuals and estates in this country are now potentially liable to pay the 40 per cent rate of inheritance tax. I remind your Lordships that this tax and its predecessors—estate duty and capital transfer tax—were designed to be paid by the very wealthy.
	Nowadays, the greatest criticism of the tax is that the very wealthy pay, pro rata, very much less than those with far more modest means. Inheritance tax now bears disproportionately highly on what can be called "middle England", whereas those who are very rich can afford to avoid the tax, or at least most of it.
	Although that is a compelling criticism of the tax, it is by no means the only one. Inheritance tax involves an element of double taxation and, in addition—this is far more pernicious—there is considerable pressure on the elderly to gift assets early to avoid the tax, and they do so far too early for their own good. This is not an argument for the reintroduction of capital transfer tax by the abolition of the potentially exempt transfer regime, although I shall come back to this point later. However, it remains a most unpleasant characteristic of the tax that the elderly often have to endure far too much pressure to gift assets early, leaving them financially and emotionally vulnerable.
	Fear of the tax can drive people into making premature gifts, the effect of which can be to weaken businesses. Your Lordships will know that, in most cases, there is 100 per cent relief from the tax for business and agricultural assets, and I believe that most of us in this Chamber will support that. Nevertheless, there is a fear—some might call it irrational—that there could be changes to this regime. I have met a number of individuals who, through fear of a change in the tax regime, have been persuaded to gift business assets and have found to their horror that the donees who have inherited those assets far too early have squandered and destroyed businesses.
	The tax also has an adverse macroeconomic effect. Fear of the tax often lures individuals into making rash and foolish gifts and investments. Much time and money is spent by highly competent specialists, usually employed by the most wealthy, in avoiding inheritance tax. They and their tax advisers could be far more beneficially employed in a more productive capacity.
	The tax militates against investment and savings. Some middle-aged and older individuals take the view that, if the taxman is going to take the money in any event, why not spend it? But surely one of the most compelling reasons for fundamentally changing the tax is that we should encourage the entirely natural and praiseworthy ambition of most of us to work hard and save money to pass these assets and cash on to our children and grandchildren. This laudable aim should not be undermined; it should be encouraged.
	There are some straightforward changes that could be made to make the tax more simple and fair. A married couple or civil partnership with combined assets, including their house, above the nil-rate band faces a dilemma. If the first dies and leaves everything, as is normal, to the survivor, there will, depending on the size of the estate, be a loss of the nil-rate band exemption, or part of it, in the estate of the first spouse to die.
	That has given rise to what is known in the jargon as mini discretionary trusts. In other words, the first spouse or civil partner to die leaves the value of the nil-rate band, or part of it, in a mini discretionary trust. The objects of the trust are invariably the surviving spouse or civil partner, children and remoter issue.
	My clients have found this whole process extremely bureaucratic and incomprehensible. I suggest that that goes for most of the public. They are aware that it will save the combined estates many thousands of pounds in tax, so they go along with it. HM Revenue and Customs know all about it, and it is an entirely usual form of tax planning. I hasten to add that there can be many non-tax reasons for creating such trusts. Never the less, people with fairly modest estates would usually prefer all their assets to pass directly and absolutely to the surviving spouse or partner without the necessity for such a cumbersome and bureaucratic mini-discretionary trust regime.
	I also hazard a guess that this regime adds considerably to HM Revenue and Customs workload. It creates extra work and complication for that department. I hope that the Government will give careful consideration to allowing the transferability of the nil rate band exemption; in other words, to enable a first spouse or partner's unused nil rate band to pas to the survivor at its value at the date of death of the surviving spouse or partner. For example, if Mr A leaves his entire estate of, say, £500,000 to his wife, on Mrs A's death she will have not only her own nil rate band exemption but also his, uprated to its value at the date of her death. Another example is if Mr A uses, for example, half his nil rate band exemption on his death, then Mrs A, on her death, will be entitled not only to her full tranche of the nil rate band exemption, but also his unused half, uprated to its value at her death.
	Another change that should be made immediately is an increase in the ludicrously low nil-rate band. I suggest that it is increased to £500,000 per individual. Furthermore, unmarried siblings living together should be treated far more fairly, and so should relatives and others who give live-in care for the elderly and the infirm.
	Of course, these changes should not prevent a complete rethink of the tax. I favour retention of business and agricultural property relief. We must assure our businessmen and farmers that the Government understand the importance of continuation and growth of the business and agricultural sectors. Tampering or lessening these reliefs is not in the best interests of the economy of this country. Foolish and inadequate businessmen will soon lose their businesses, notwithstanding the tax regime.
	As I have said earlier, the impact of the tax on the very wealthy is minimal but its impact on middle England is grossly unfair. The rate of tax is too high and the nil-rate band is too low. I assure the House that it will always be open to the very wealthy to avoid the tax because they can afford to do so. To correct this imbalance, there needs to be a fundamental rethink of how the tax is levied. It may be that part of the bargain for a substantial reduction in the rate of tax is the abandonment of potentially exempt transfers. In order to justify this, however, one would retain the free capital gains tax uplift on death. Many argue that it is only fair that individuals and estates should at least bear some taxation on capital. My point is that it must be fair and be seen to be fair. If the Government were to adopt a nil-rate band of £500,000 with transferability of allowances, as I have outlined earlier, it may be that, consequent on withdrawing potentially exempt transfers, the rate of tax should be fixed at about 10 per cent or graduated up to a maximum of 20 per cent, coupled with, on death, a free uplift for capital gains tax.
	Lifetime gifts, whether absolute or into trust, should all have the advantage of an election for holdover relief for capital gains tax. This might at first seem generous, but lower tax rates do not necessarily mean lower receipts. I remind the House that a Labour Government introduced tax-free inter-spouse gifts when it introduced capital transfer tax in the Finance(No. 2) Act 1975. That was a worthwhile and welcome change. Furthermore, I remind the House that the reforming Governments of the noble Baroness, Lady Thatcher, reduced corporation tax from 52 to 33 per cent, and the consequence of this change was to yield a vastly increased amount of corporation tax. Sensible tax rates encourage jobs, businesses, investment and savings.
	Finally, I shall say a few words about the trust tax changes made last year. Most trusts, with the possible exception of some mini discretionary trusts, are not established for tax avoidance reasons. They are established to overcome the difficulties faced by vulnerable beneficiaries, the difficulties arising on marriage breakdown and the fragility of marriage generally. An individual is unlikely to want to make an outright gift to a recently married child or grandchild for fear of what might happen, especially in the early stages of the marriage. In January this year, HM Revenue and Customs published the results of its own market research into the use of trusts, which made it abundantly clear that most trusts were set up for reasons other than tax planning.
	Last year, during the Finance Bill, the Paymaster-General was kind enough to discuss with me the Government's proposed changes to inheritance tax on trusts. Welcome changes were introduced by the Government in respect of will trusts. I hope that they will see the force of the arguments made on behalf of millions of potential taxpayers by organisations such as the Law Society and the Society of Trust and Estate Practitioners that the up-front 20 per cent charge that now applies to all new lifetime trusts is unnecessary and unfair.

Lord Campbell-Savours: My Lords, I congratulate the noble Lord, Lord Burnett, for introducing this debate, but I make clear my total opposition to any cut in the tax take. I also congratulate the Chancellor of the Exchequer for having the courage to stand up to this national campaign for an increase in the threshold.
	Lest it be thought that my position derives from some perverse tilting towards the politics of envy, let me make it absolutely clear that there are no circumstances whatever in which I would accept inherited wealth. I should add that this position, which I have taken over a lifetime, is at some considerable sacrifice to me and my family. However, it has enabled me to argue a position in principle for more than 40 years without being labelled a hypocrite.
	I shall discuss the principle behind the tax. The prime question in my mind is about the impact of inheritance on the recipients. Can it alter the conduct of individuals? My case is that is does—and not always helpfully. The impact of large windfalls of cash on National Lottery winners is already well documented. I admit that a lottery win provides an exaggerated example, but it does indicate that windfalls can create problems. There are many reported cases of breakdowns in marriages, squandering of money, inter-sibling squabbling, collapse of long-standing friendships, professional lives destroyed, workplace friendships fractured through inequitable distribution of winnings, drug abuse, nervous breakdown, gambling, even the funding of crime and, most important of all, the destruction of families in a welter of recrimination and greed.
	So how can inherited wealth impact on personal conduct? I argue that it devalues the value of money by undermining understanding of the relationship between effort, wealth creation and earning through work. Therefore, it can, in certain conditions, destroy incentive, innovation and ambition. I well remember that when I was a young man a number of my friends, in conditions of privilege, received early windfalls. Two of my friends lost their fortunes and to this day—we are still friends—believe that handling large amounts of money in their 20s created problems over a lifetime. The devaluing of the value of money at an early age is at the heart of the problem. It can destroy the potential for entrepreneurship and individual endeavour.
	On the other hand, inherited wealth can have the reverse effect. I have another old acquaintance who inherited some tenanted property and an old quarry in the north of England. He worked hard with his inheritance and built up a huge public company. He is one of a few who start off with a modest inheritance and are successful in their own right. I ask the simple question: how many potential entrepreneurs were sidetracked by early life inheritance and thereby missed the fascinating experience of building an enterprise brick by brick through times of hardship by Herculean effort and personal sacrifice? The taste of success is particularly sweet for those who build through their own efforts and risk. I count myself among such people.
	Inheritance too often only generates idleness. People can lose the will to succeed in the world of work; their ambition dissipated. Sometimes this demotivation can start well before the windfall as people organise their lives in expectation of inheritance. Some people spend a lifetime in expectation and so organise every aspect of their lives to ensure the trouble-free transfer of assets.
	I remember as an MP some of the cases I was asked to handle. People would actually come to me and complain over the detail of a will. Such arguments invariably arose where people had factored in potential windfalls as part of their personal finances. Sometimes they had been outmanoeuvred by a relative, usually described as "greedy" or "money-grabbing". More often than not I concluded that the greed was to be found in the eye of the complainant.
	People would suddenly start visiting elderly relatives, object to local authority calls on assets to pay for elderly care, isolate relatives who were rival potential recipients, contrive sibling squabbles, object to elderly relatives spending, and even manipulate the ownership of assets for personal advantage. I found this whole area of constituency work disturbing. It is as though some people out there are just waiting for other people to die.
	Then there are those families whose wealth creation is justified on the basis that they are doing it for the children. No consideration is given to whether it is in the long-term interest of their children to benefit or on how it might impact on their lives. I have an instinctive suspicion of those who justify their wealth on the future needs of their children.
	There is, however, a controversial issue surrounding this whole debate. It is the impact which inherited windfalls have on the housing market. We are told that property price inflation within the UK is due to four factors: the inflow of funds from overseas, city bonuses, immigration and increased demand, and housing shortages. However, there is a new factor which is having a pronounced effect on property prices particularly in the regions—inherited wealth. The mathematics are simple. The windfall-driven housing economy enables people to boost the prices they are prepared to bid and pay for houses. If on a given day purchasers in the market are competing for a house, not only on the basis of a given multiplier on income added to their savings but also on the basis of a windfall, then the windfall bidder will invariably win. Not only do they win, but their purchase influences other property values in the area by triggering further house price inflation. In fact, one inflationary house price sale feeds the next inflationary purchase. And, let me be clear, we are not talking about parental help with deposits, which even in themselves have some marginal effect, we are talking about substantial legacies which really influence local markets.
	So where do we go from here? What can the Chancellor do? We all know we cannot end inheritance. People passionately believe in their right to pass on the fruits of their labour from one generation to another. Nevertheless, every generation should think through carefully the consequences for family life and wider society before accepting it, or rejecting it as I have done.
	We could, however, use death and inheritance for redistribution and widen the net of beneficiaries. To do that I would abolish the tax completely, thereby removing the argument over the threshold; I would then transfer the liability to tax from the deceased to the recipient and tax the recipient at their marginal rate at the time of distribution. For reasons of fairness, I would extend domiciled inter-spouse tax-free transfer arrangements to the non-domiciled and ensure protection for working farms, family businesses, charities, the heritage and obviously a few other areas which have been referred to. I would then feed the entire additional tax take back into the system through a reduction in the standard rate of income tax. It would give a real boost to incentives in that part of the tax system, which really matters.
	Finally, I would introduce an age taper, with tax penalties on younger people who receive inherited windfalls, to give weight to the transfers of wealth to older people in society. I suppose that it is strangely ironic that I should find myself arguing for that in this place, the House of Lords, which is one of the most privileged institutions on earth; for many generations, it has survived on the hereditary principle and inherited wealth to maintain its existence. Curiously, this is probably the best place to argue my case, because it is here that it is most likely to be understood.

Lord Sheikh: My Lords, I declare an interest as the chairman and chief executive of an insurance broking and independent financial advisory organisation. We are also involved in financial planning work for our clients.
	The amount of inheritance tax revenue raised is small compared with other taxes. During 2005-06, inheritance tax was less than 1 per cent of total tax receipts. At present, only 38,000 taxpayers pay IHT, although the number of taxpayers who have to produce IHT returns is much higher.
	Its proponents believe that it is somehow wrong for people to inherit large amounts of wealth and that therefore the state should take away a large proportion of it. Having said that, socially I feel prepared to accept the principle of inheritance tax. This tax used to affect the wealthy, but it is now affecting many property owners, which was not its original intention.
	Since 1997, the threshold has not kept up with house prices, average earnings or inflation. Thereare now more people who will have to pay inheritance tax than ever before. In fact, more than 5 million households—21 per cent—in Great Britain are now valued at more than the current inheritance tax threshold of £285,000. A further 5 million are liable for inheritance tax when total household wealth is taken into account, making a total of four in 10—41 per cent—or10 million households. Most of those cases will be the average hard-working middle-class person.
	Increasing house prices are the main reason for a greater proportion of estates qualifying for inheritance tax now than a decade ago. A recent survey found that 67 per cent of homeowners felt that IHT was unfair. Increasing the threshold to £295,000—and, potentially, £300,000 later this year—will not go far enough. Some calculations suggest that the threshold would be £390,000 if it had risen in line with house price inflation during the past 10 years.
	Although inheritance tax contributes only a small percentage of total tax receipts, it still makes a valuable contribution to the Exchequer. To increase the yield for inheritance tax, the Government have introduced several anti-avoidance measures. Those include pre-owned assets tax (POAT), which levies an income tax charge on benefits received from assets given away, and last year's changes to inheritance tax and trusts, which moved interest in possession trusts to the discretionary trust regime. These measures cause concern. They were introduced without consultation and, as a result, innocent transactions have been caught by the new rules.
	A further point is that, under the current inheritance tax regime, many more individuals or their executors must complete complex forms on inheritance tax where there is no liability to tax. The administrative burden needs to be reduced. This matter needs to be taken up separately with HM Revenue and Customs.
	I do not advocate the abolition of inheritance tax. I do, however, propose certain solutions that could be given further consideration. These will go a long way towards alleviating the pain to the average hard-working, middle-class person, without any major social impact on the amount paid by the really wealthy. Inheritance tax bears more heavily on the middle classes, such as people with wealth of between £300,000 and £1 million. The poor have so few assets that they will fall within the nil-rate band. The very rich can, to a large extent, avoid the tax by utilising concessions on lifetime gifts and relief for business and agricultural assets.
	The effect and unpopularity of the tax could be reduced in the following ways. First, inheritance tax thresholds should be increased. They increased by14 per cent from 2001 to 2006. However, the threshold for income tax and NIC has risen by 24 per cent over the same period, suggesting that fiscal drag has been effective at increasing the amount raised. At present, nearly every householder in the south of England will be liable to inheritance tax, as the tax threshold starts at £285,000. I suggest that there should be relief on the principal private residence—or PPR—so that the first £250,000 of the value of the deceased's principal estate can be exempt from inheritance tax.
	Secondly, the rate of inheritance tax, at 40 per cent of the amount above £285,000, is very aggressive, and it would be fairer to have a graduated tax, such as 10 per cent from £285,000 to £385,000, 20 per cent on the next £100,000, and 30 per cent on the next £100,000 above that, so that the full rate of 40 per cent would not begin until £585,000. Thirdly, the number of categories of assets attracting relief should be increased, either directly or from associated tax rules such as POATs and the charges on transfers into trust. Fourthly, there should be an exemption from all periodic and exit charges for all term life assurance policies held in a trust that excludes the settlor as a possible beneficiary provided that the cash is paid out of the trust within two years of the settlor's death. Fifthly, there should be an exemption from all pre-owned assets tax and inheritance tax implications for all pure term assurance policies held in business trusts.
	I reiterate that these proposals merit further consideration and, after deliberation, can be accepted, altered or rejected. I would very much appreciate the Minister's comments on my proposals.
	My Lords, I, too, am very grateful to the noble Lord, Lord Burnett, for giving us a chance to have this debate. I am also very much in admiration of his altruism in doing so: not as a farmer, of course, because they long ago got out of paying any inheritance tax, but as a solicitor, because I am sure his wise advice is very highly valued in the market place, and good luck to him. However, I will be interested to hear from the noble Lord, Lord Newby, whether he too wants to see the proceeds of inheritance tax slashed. If he does, he will confirm the view that many of us have of the Liberal Democrats; it is the party which wants a lot more spending, but no taxes to pay for it.
	I read only the Racing Post these days, because it is the only newspaper where the facts can mostly be trusted. I do not know whether the noble Baroness, Lady Noakes, agrees with that. But I have read some of the coverage of this issue in the Daily Express and the Daily Mail. In one of them, I saw inheritance tax referred to as a "death trap". I am afraid that I recognise only one death trap; namely, the death trap that is summed up in the shorthand phrase, "You can't take it with you". This is not a tax on the people whose estates it is paid on. I readily accept that it is a tax on their successors and for that reason, it is a rightful tax.
	Given the time of night, I shall make a few observations in a somewhat staccato fashion. First, as a former member of the Royal Commission on Long-Term Care of the Elderly, I am more and more struck by how much we have become two nations in old age, despite all the endeavours of the Chancellor of the Exchequer to deal with it. Many old people are not well off, but a section of old people enjoy unparalleled prosperity in old age. They often benefit from past final salary pension schemes and can cash in now, through equity mortgages, on the values of their houses. Of course, as life expectancy goes up, they live for many more years in considerable comfort. Anyone who doubts me should pick up the holiday sections from any of our large Sunday newspapers and look at the number of holidays costing £10,000, £20,000 or £30,000 for trips around the world and so on. Of course, I do not resent people having this money, but it is reasonable to say that if anyone is deserving of tax breaks in our country, it is not these people but others who are harder pressed.
	Secondly, all parties now are agreed on equality of opportunity as being a goal of our society. Substantial inheritance is an arrow through the heart to equality of opportunity. It grants some people huge opportunities that are not open to others however much they strive and try. The other day I noted the very wise words of Hank Paulson, the US Treasury Secretary. He is a former head of Goldman Sachs, so I assure the House that he is not short of a dollar or two. Very wisely, he said that he loves his children too much to give them a big inheritance. If children are given big inheritances, they lose pride in their own achievements and the incentive to succeed. I think that £300,000 between one's kids is quite enough. I certainly will take no measures to avoid paying my share of inheritance tax on my money which exceeds that threshold.
	As a former practising economist, my third point is that by common consent in this country capital is taxed very lightly and income is taxed reasonably heavily, which would be a common view among economists. I will not go into every feature of it, but inheritance tax is one of our few substantial taxes on capital. We do not have, for example, wealth tax, or gift tax, to which the noble Lord, Lord Campbell-Savours, referred. Therefore, I regard it as part of redressing that balance.
	Sadly, however, inheritance tax has been undermined by the many avoidance measures spoken of so eloquently by the noble Lord, Lord Burnett. We have gifts inter vivos, schemes to enable couples to claim two allowances rather than one, and you can have 10 years to pay off the money inherited from the value of someone's house. All these and many more are ways of avoiding the tax. It is true that the very rich do not pay the tax unless they do not trust their children to give them the assets during their lifetimes. I regret that and should like to see an inheritance tax, whatever the threshold and the rate, that basically is payable on whatever you are worth when you dieand for the methods of avoiding it before you die to be cut off.
	My fourth point is one that surprised me when I did my research. This debate and the debate held in the popular newspapers are conducted as if inheritance tax is on the up, suggesting that more and more people are paying it. That is true over a very short period, but it is not true over the long term. I have checked the Inland Revenue statistics. In 1938-39, 153,000 estates were subject to inheritance tax. By 1968-69, that figure had almost halved to 81,000. By 2006-07 it has declined to 35,000 estates, though I accept that in recent years there has been some rise as a result of the house price boom. This is not a tax that is becoming increasingly onerous; it is one that is affecting fewer and fewer people over the long term. We heard in the debate last week that the Treasury predicts that it will continue to be the case that 94 per cent of estates do not pay inheritance tax.
	That brings me to the theme explored by both the noble Lord, Lord Burnett, and the noble Lord, Lord Sheikh. They suggested that this is a tax that hits middle England. If 94 per cent of the population do not pay it, only 6 per cent of the population do. Perhaps it is right that they should pay it, perhaps it is wrong; but whatever that 6 per cent is, it is not middle England. It is a small percentage of those at the top. I understand that when these matters are considered in Fleet Street, that percentage is heavily represented, as it is in this House. I am sure that the noble Lord,Lord Burnett, is going to pay inheritance tax, as will the noble Baroness, Lady Noakes, despite her accountancy skills. I will pay quite a chunk, although in my case if not theirs I shall do so quite willingly. This is not a tax on middle England, it is a tax on the relatively wealthy.
	I close with a final observation that might give the House some pause for thought. For every family that pays this tax, at a rough guess there are some six to eight families who have no assets at all. Something like 40 per cent of the population have no assets to their name. That is a staggering fact. Here I refer back to the previous debate. We should give more of our time to thinking about the ways we can help that 40 per cent than on thinking about getting rid of this modest impost on the very rich.

Lord Newby: My Lords, I have been pleasantly surprised by this debate. When the noble Lord, Lord Burnett, tabled a Question to be held as last business at the end of the week, I feared that we would be in the same position we found ourselves in during the last business taken last week. I wondered whether the noble Lord, Lord Burnett, and the noble Baroness, Lady Noakes, the noble Lord, Lord Davies, and myself would be the sole participants. So I am most grateful to all other noble Lords who have spoken. I say that because, much as I enjoy listening to the noble Baroness, Lady Noakes, and the noble Lord, Lord Davies, it is nice to have a somewhat wider debate on a matter related to public finances. What this debate has demonstrated is one of the key features of inheritance tax. It generates a tremendous amount of heat for a relatively small amount of cash. As noble Lords have said, it represents 1 per cent or less of the total tax take. It is worth less than£4 billion compared with the £135 billion collected in income tax.
	We on these Benches agree with the aim of the tax. Particularly at a time of rising inequalities of wealth, it seems appropriate to tax a proportion of the assets of the wealthy when they die, to moderate the extent to which inter-generational transfers of wealth lead to a greater concentration of wealth in the hands of a few, and to rein in the extent to which the rich get richer through death.
	I am sorry to disappoint the noble Lord, Lord Lipsey, but, in regard to his crude and inaccurate description of Lib Dem tax policy in this respect, I can only suggest that for his weekend reading he studies the excellent and comprehensive policy document which we adopted at our conference last year.
	The other argument advanced today about the continuation of the tax is the point made by the noble Lord, Lord Campbell-Savours, and, to a certain extent, the noble Lord, Lord Lipsey, about the effect of windfalls of large amounts of cash and wealth being passed down the generations. I can see some force in that, although it is increasingly the case as the population ages that the people who receive such windfalls are in middle age themselves. The noble Lord, Lord Campbell-Savours, described a bracket which combines inherited wealth or the hereditary principle, neither of which apply to me. I am fortunate that my mother is hale and hearty, and I suspect she will be for many years further, but even if she had a billion pounds to give me it would not have affected my life up until now. So that argument has become less relevant with the passage of the years.
	It has been clear from all speeches that there are problems over how the tax works in practice. The two principal ones are, first, that it is relatively easy to avoid the tax if you are extremely rich and can employ a very good lawyer. Incidentally, the noble Lord, Lord Lipsey, significantly underestimated the powers of my noble friend Lord Burnett in this respect when he suggested that he might have to pay a significant amount of tax himself. I would be very surprised if the noble Lord allowed himself to get into that position.
	The second major problem is the failure of the Government to raise the threshold for payment of the tax in line with house prices. Given that housing is by far the largest asset of most householders, even the relatively wealthy, many families who do not consider themselves wealthy have been brought within the scope of the tax. Unlike the very wealthy, because their house is their principal asset and they are not prepared to downsize their house as they get older, they are unable to reduce their tax burden as the more wealthy can.
	My noble friend Lord Burnett mentioned a number of other respects in which the tax leads to behavioural issues which may cause problems when the elderly or owners of businesses give their assets "too early", as he described it.
	All these problems have led to calls for the reform—or, in some cases, the abolition—of the tax to make it less easy to avoid and to raise the threshold so that the affluent middle class, particularly in London and the south-east, are covered by it. The proposals of my noble friend Lord Burnett would be a very radical—nay, bold—way of dealing with this issue. My principal concern about them is that, to a certain extent, he is basing his arguments on the reasoning of the famous Professor Laffer, who argued, as does the noble Lord, that reducing rates could increase revenue. In this case it would reduce the incentive to evade the tax, and many more people would not take the trouble to avoid the tax if the rates fall to a quarter or, at worst, a half of what they are now. Even if that were true in the long run, the immediate effects of the Minister's changes would be to greatly reduce the revenues from the tax. I think he is proposing to reduce the rate by between a half and three-quarters and to raise the threshold by 75 per cent. I know he has other suggestions that may mitigate those two consequences, but in the absence of those or any other changes those measures would reduce the revenue from this tax by the best part of£3 billion in the first year or two.
	Although there may be subsequent behavioural changes that bring the level of income back up from this tax, the short-term costs of making those changes are considerable. I still need a bit of persuading—and the noble Lord has been trying very hard to persuade me—that in the medium term we would still have the kind of behavioural change required to bring the take from the tax back up to its current level.
	The second approach to reform is that proposed by the noble Lord, Lord Forsyth, in his report on reforming the tax system. He wants to go furtherthan the noble Lord, Lord Burnett, in abolishing inheritance tax altogether and replacing it with a short-term capital gains tax on death. He would exempt the family house from this new tax altogether. He costs his proposal, as part of the other changes he makes to capital taxes, at £2.6 billion a year. I will be interested to hear from the noble Baroness, Lady Noakes, whether that is now Conservative policy, and, if so, how the party intends to make up for the lost income.
	When we looked at this issue last year in the Liberal Democrat tax commission, we endorsed the principle of the tax and thought there were several ways in which it could be changed that would greatly improve its operation. First, we proposed that lifetime gifts should be included in the taxable sum. Secondly, we proposed that the tax should be levied on accessions, so that the tax paid varied to the degree that an individual benefited from a legacy. In theory, such a system would encourage testators to spread bequests over a large number of people and so spread their wealth further.
	I am well aware that neither of those two proposals is straightforward to administer, and that the noble Lord, Lord Burnett, would put it more starkly than that. However, they both offer a different approach with, in principle, better outcomes than the current administration of tax, in my view, and we are looking further at them.
	For my sins, I am now chairing the successor body to last year's Liberal Democrat tax commission, where we are looking not only at these possible changes to the tax, but at any other beneficial changes we could make; for example, whether we should keep all the present exemptions. It is not particularly clear to me, for example, as a major shareholder in a small business, why any value the shareholding might have on my death should not form part of my taxable estate. The suggestion that when I get up for work tomorrow morning I might think to myself, "It's really not worth working so hard today because, what I hope will be many years in the future, a proportion of the value of this business may be taxed" frankly does not enter my reckoning, and I doubt it would enter the reckoning of any entrepreneur. We will be debating our proposals at our autumn conference this year, but, whatever we decide there, I am sure it will not be the end of the arguments on inheritance tax.

Baroness Noakes: My Lords, I thank the noble Lord, Lord Burnett, for giving us the opportunity to debate inheritance tax. Had the debate been at a more congenial time, I can assure him that far more of my noble friends would have been joining me to debate the subject, which is close to many of my noble friends' hearts.
	Benjamin Franklin once said that nothing is certain except death and taxes. Our debate today covers the unholy alliance between the two. The noble Lord, Lord Lipsey, gave us a history lesson going back to the 1930s. We can go back even beyond that to when estate duty started, at the back end of the 1890s. By the early 1900s, estate duty raised about18 per cent or 19 per cent of the total tax yield—an astonishingly large amount. That was done with rates that were over 10 per cent on estates over £1 million, and 15 per cent on estates over £3.5 million. In today's money, that is about £85 million and £300 million respectively, which shows that this tax was originally conceived for very wealthy estates, and it has become something quite different.
	The tax does not account for the same degree of yield now, as several noble Lords have said. I think we would all say amen to that. But it is on an upward trend; the yield in 1996-97 was £1.6 billion and the current estimate for this year is £4.1 billion. That is quite a strong rising trend. As we have heard, that has been accompanied by quite a big increase in the number of estates coming within the net—from 20,000 to an estimate of nearly 40,000 this year.
	My noble friend Lord Sheikh reminded us that 40 per cent of households are now estimated to be potential inheritance tax payers. The noble Lord, Lord Lipsey, said that it is paid only by the richest 6 per cent, so we do not have to worry about it. The research now shows that 40 per cent of households—and that is more people—are potentially going to have to pay inheritance tax because of their family assets.
	The real problem, as a number of noble Lords have suggested, is the failure of the inheritance tax threshold to keep pace with asset prices. The threshold has increased by about one-third since 1997, but average house prices have gone up by 145 per cent. The Council of Mortgage Lenders has estimated that 35 per cent of inheritance tax is now attributable to residential property. That has doubled in the past 10 years.
	The total value of smaller estates, which is what we are talking about, is hugely influenced by the value of the family home. In Greater London, the average house price is now higher than the inheritance tax threshold. There is a great sense of unfairness that the values of ordinary people's homes are dragging them into the IHT net. Another perceived unfairness is that there is one national threshold but house prices and their rate of increase vary hugely across the country. Those who live in London and the south-east can see their rather modest property assets being taxed, but those who live in other parts of the country in comparable homes will come nowhere near the threshold.
	The noble Lord, Lord Burnett, referred to the surviving spouse or surviving civil partner exemption, which, too, has generated a great sense of unfairness, because siblings and other close family members who may have the same emotional attachment to, and economic dependence on, the family home are not given equivalent protection. That is so much more important, because the threshold has been devalued compared with the assets that people want to protect.
	Another area which I do not think has been mentioned is exemptions for small gifts up to the value of £250 and the annual exemption of £3,000. Those limits have been unchanged since the early 1980s. If they had been allowed to keep pace with straightforward RPI inflation, they would now be around £750 and nearly £8,000 respectively.
	The Government have already announced that the main threshold will go up next year, but many predict that that will be wiped out by further house price increases, given the continuing strength of house prices. Do the Government have any intention of reviewing the main threshold again and will they consider revising the gifts limits? Alternatively, will the Minister confirm that it is the continuing intention of the Government to let fiscal drag drive inheritance tax yields?
	It has been pointed out that inheritance tax is largely avoided by the rich, who can afford to transfer significant parts of their wealth during their lifetimes or to invest in the categories of asset that are favoured. The latest attempts by the Chancellor to tighten up the rules on trusts, to which the noble Lord, Lord Burnett, referred, have largely by-passed the better-off, but have hit middle England. We can see in revenue and customs statistics that the number of people paying inheritance tax with estates valued at less than £2 million is rising much faster than those of higher value, which reinforces the fact that this tax is bearing down on middle England.
	There are strong theoretical objections to inheritance tax, because it involves significant double taxation; it taxes wealth which has been accumulated out of taxed income. Importantly, it does nothing to encourage savings. Unlike the Government, we believe that the savings ratio, which has virtually halved in the past 10 years, is a serious issue. In fact, if you strip pensions savings out of the savings ratio, the savings ratio is barely positive.
	Stephen Byers, not normally seen as a right-wing thinker, said last year that inheritance tax was a,
	"penalty on hard work, thrift and enterprise".
	That is what Gordon Brown does: he attacks hard work, thrift and enterprise. He knows that the softest targets in our economy are the middle classes, who value home ownership and who save. These are the people who are being attacked by inheritance tax and are affected most by stamp duty land tax, which is now raising over £1 billion per quarter. They are the people who have been hit hardest by the Chancellor's infamous raid on pension funds. They were hit by the latest changes announced in the Pre-Budget Report, in which the Chancellor attacked alternatively secured pensions, introduced only the previous year. They are probably also the people who have been paying extra capital gains tax, because that has been yielding significantly additional amounts, with another 500,000 people paying capital gains tax since 1997. The rich can use a combination of techniques to minimise their taxes, including inheritance tax, but middle England does not have those options and is bearing the brunt of the Chancellor's redistributive aims.
	The noble Lord, Lord Newby, tried to goad me into talking about Conservative tax policy, but I am sure that he knows that we have said very clearly that we would put economic stability before tax cuts, and until we are clear what scope there would be we will not talk about tax cuts. We remain in principle a party that seeks to achieve tax cuts, but not at the expense of economic stability.
	I hope that the Minister today will at least recognise that inheritance tax has developed in an undesirable way and needs changes to make it fairer on the middle England that it attacks so ruthlessly. I also hope that he will say whether the views of the noble Lord, Lord Campbell-Savours, represent Government policy, because I am sure that the electorate would be very interested in that.

Lord Davies of Oldham: My Lords, we are all grateful to the noble Lord, Lord Burnett, for having introduced this debate. I suppose that I must respond immediately to the noble Baroness, Lady Noakes. I do not think that my noble friend Lord Campbell-Savours thought for one moment that what he was saying represented government policy, either now or in the immediate or even the likely future. Nevertheless, what he said was of considerable significance, not least in his comments on the relationship of inherited wealth and the incentive to work hard and achieve. I thought that he made an extremely valuable point in that regard.
	I am grateful, too, to my noble friend Lord Lipsey, who sought to put this whole debate into some kind of context. If I repeat some of his remarks, it is because I, too, want this debate to be in context.
	There has certainly been an awful lot of talk recently in this House, the other place and the mainstream media, that inheritance tax is one of the blights of our time and that middle England is subject to the aggressive forces of the inheritance tax. Out of 600,000 people who passed away last year, only 34,000 estates attracted an inheritance tax liability—one in every 17, about 6 per cent. That is a pretty narrow definition of middle England, if one also recognises that included in that 6 per cent are the extravagantly wealthy. We should not exaggerate the impact of inheritance tax. The noble Baroness, Lady Noakes, said that some 40 per cent are liable to pay the tax. These figures have percolated into the mainstream media through the latter's lack of rigour but they do not stand up to close examination.
	The house price dimension does not stand up to close examination either. House valuation accounts for about 50 per cent of the total assets of the majority of those who pay inheritance tax. Therefore, we should not pretend that a substantial number of people are trapped through rising house prices. Anyway, what are these rising house prices? The average house price in the UK in 2006 was £197,000. Noble Lords will recognise that there is a fairly generous margin between that figure and the point at which the tax is payable. The median price—the best measure we have of a typical property in England—was £175,000.
	The noble Lord, Lord Burnett, emphasised that this issue is more acute in the south-east. This House is often very strong in its advocacy of south-eastern issues and interests. But we are, after all, the second House in this Parliament and we have an obligation to take things in the round across the country. I concede that there is a problem of rising house prices in the south-east. How great is that problem? Last yearthe median price for London was £250,000 and for the south-east region as a whole, £210,000. That is a narrower margin than applies in the rest of the country but it is nevertheless a margin of real wealth before the tax begins to bite. We need to get the matter in perspective.
	The noble Lord, Lord Burnett, was rightly challenged by his own Front Bench, who are careful about the implications of reducing the potential take from inheritance tax. The total tax take is worth 1p on income tax. That is a pretty substantial figure. It behoves those who advocate a substantial reduction in inheritance tax—I think that was the burden of the remarks of the noble Baroness, Lady Noakes—to say where the resources are meant to come from.
	The approach that the noble Lord, Lord Burnett, suggested in a number of other areas might minimise the significance of current reliefs. The 100 per cent reliefs for business and for agricultural assets are of great significance and play their part in building up business. That is a reflection of the obvious fact that we are concerned to sustain our productive capacity in this country. Therefore, we ensure that people can continue to invest in certain assets and that those assets will be carried on beyond their lifetime.
	The noble Lord, Lord Burnett, mentioned the hoary old tale of this measure being double taxation. No Government recognise the concept of inheritance tax being double taxation. Is VAT double taxation because we all pay income tax as well? Of course not. The issue of inheritance tax cannot surely have a unique quality—